Many advisors and wealth managers are switching to model portfolios and taking a more hands-off approach when it comes to constructing and managing clients’ portfolios. The upside of this is clear as it gives advisors more time to spend on client relationships and building their business. According to surveys, about 35% of an advisors’ time is spent on managing and researching investments.

Yet, it doesn’t make sense as an advisors’ ultimate success depends on retaining and recruiting clients and helping them reach their financial goals rather than the incremental gains that can be theoretically achieved by spending more time researching investment ideas. 

According to Cerulli Associates and covered by Kenneth Corbin in Barron’s, many large brokerage firms are also embracing model portfolios and encouraging brokers to spend more time with clients. Cerulli’s research shows that in down years for the market, 60% of advisor portfolios underperform the market, undercutting the rationale for more active management. 

 68% of brokerage firms are now moving away from advisor-constructed portfolios. In the future, they see advisors serving more as ‘holistic financial planners’ rather than stock-pickers or portfolio managers. Over long periods of time, model portfolios outperform most advisor-generated portfolios with much less risk or concerns about compliance or conflicts of interest. 

Finsum: Large brokerage firms are encouraging advisors to embrace model portfolios especially given lackluster returns of many advisor-built portfolios and the extra time and energy it gives for client service.

Your eyes don’t deceive you. Well, at least not this time.

In the second quarter of the year, there was a bounce of 12% year over year to $88.6 billion, reported limra.com. The catalyst: a tag team of unprecedented registered index linked annuity and fixed indexed annuity sales, according to preliminary results from LIMRA’s U.S. Individual Annuity Sales Survey.

“Double-digit equity market increases and stable interest rates have prompted investors to seek out greater investment growth opportunity through RILAs and FIAs,” according to Todd Giesing, assistant vice president, LIMRA Annuity Research. Economic conditions continue to be favorable for the annuity market, he added.

-Last year, fueled by volatility in the equities markets and a spike in interest rates, there was a bump in annuities sales, according to winintel.com. Also in 2022, total U.S. annuity sales hit $310.6 billion -- a 23% increase over 2021. And, wait, there’s more. For you history buffs, it was a jump of 15% from the sales record hit in 2008.

At the latest FOMC meeting, Fed Chair Jerome Powell made some headlines when he struck a dovish tone despite resuming its normal schedule of quarter-point rate hikes. He also slightly upped his assessment of the economy declaring it growing at a ‘moderate’ pace while it has been described as growing at a ‘modest’ pace previously. 

In terms of fixed income, the asset class initially saw a decent rally due to many investors interpreting Powell’s dovishness as an indication that the Fed is in the final stages of its hiking campaign. But, these gains were quickly given back with yields spiking higher following the stronger than expected GDP print which came in at 2.4% vs expectations of 1.6%. 

Following this print, odds of the Fed cutting rates in the first-half of 2024 declined, and many market forecasters pushed back or revised thier prediction of a recession as well. With the economy robust despite higher rates, it’s likley that rates stay elevated for longer. Adding to the weakness was unemployment claims coming in lower than expected, adding to evidence that the labor market is re-accelerating following a period of softness. 

As a result, Treasury yields spiked hihger and are now approaching their 52-week highs.

Finsum: Fixed-income enjoyed a nice rally following the dovish FOMC meeting. But, the asset class weakened following a stronger than expected GDP print and lower than expected unemployment claims. 

REITs are attracting attention from investors for a variety of reasons. For one, it’s looking increasingly likely that the US will avoid a recession which bodes well for occupancy rates, property values, and home prices. Second, the Fed is in the final stages of its rate hike cycle which means interest rates will go from a strong headwind to a mild tailwind especially if inflation continues to move lower. 

Due to weakness over the past year and a half, REITs are quite compelling from a value perspective while also offering juicy yields to investors. For Benzinga, Kevin Vandenboss identifies 2 REITs that investors should consider buying.

He likes SL Green Realty which is an owner and operator of premium Manhattan commercial real estate property. While many areas of commercial real estate like offices and retail may never recover, SL Green is a bet that premium properties will recover - a historically savvy bet. Currently, the stock yields 8.8% and has a stable payout ratio of 59%, indicating a stable dividend.

Another is Medical Properties Trust which focuses on hospital facilities and has properties in 10 different countries, leading to a diversified portfolio. Also, medical facilities tend to be much more stable than residential or commercial real estate especially given an aging population in most parts of the world. Finally, it also has a dividend yield of 11% and a track record of annual dividend increases. 

Finsum: While REITs have been an underperformer for much of the past couple of years, the sector offers juicy yields and tantalizing upside given recent macro developments.

One of the most puzzling developments over the past 18 months is the wide gap between public and private real estate. Many publicly traded REITs are down between 30% and 40% from their highs in 2021, while private real estate funds are flat or have losses in the single-digits. 

There are a variety of theories to account for this disconnect, including expectations of mounting losses in commercial real estate (CRE) given that office occupancy rates are not returning to pre-pandemic levels. However, it’s also fair to note that in recent months publicly traded REITs have outperformed and somewhat shrunk the gap. In Institutional Investor, Hannah Zang covers why many investors are seeing an opportunity in REITs and believe that the market is overreacting to weakness in CRE especially given that it only accounts for 3% of the total REIT market.  

Currently, the cap rate for REITs is 50 basis points higher than private real estate. Historically, this has indicated a buying opportunity in the sector especially as some of the macro headwinds of the sector seem to be dissipating with the vast majority of real estate prices holding steady and the Fed in the final innings of its rate hike cycle. 

Finsum: There’s an interesting divergence between private and public real estate. However, many investors see opportunity in publicly traded REITs and believe that investors have overreacted to macro and CRE issues.