While rising interest rates last year battered both stocks and bonds, the rise in rates brought higher yields to the fixed-income market. According to Dow Jones Market Data, the yield on the 10-year Treasury note rose 2.330 percentage points in 2022 to 3.826%, its largest annual gain on record. The two-year Treasury yields surged 3.669 percentage points to 4.399%, while the 30-year yield jumped 2.046 percentage points to end the year at 3.934%. These marked the largest annual increases ever for those notes. The jump in yields drove investors into fixed-income ETFs last year, with BlackRock's iShares dominating inflows. In a phone interview with Morningstar, Salim Ramji, BlackRock's global head of iShares and index investments, stated "We had record flows even in one of the worst fixed-income markets. We were twice the next competitor." Based on data from Morningstar Direct, iShares attracted around $100 billion in 2022, the most among U.S.-listed ETFs that invest in fixed income. Vanguard saw the second biggest fixed-income ETF inflows with around $49 billion, followed by State Street with about $21 billion. The most popular fixed-income ETF based on inflows last year was the iShares 20+ Year Treasury Bond ETF (TLT), which gathered around $15 billion.

Finsum: In an ugly year for fixed-income markets, bond ETFs continued to see strong inflows due to higher yields with Blackrock’s iShares leading the pack.

Direct indexing was a hot topic last year as personalization gained steam. It is expected to continue to gain popularity with investors still dealing with inflation and recessionary concerns. Investors want an investment strategy that not only combats market volatility but also addresses their personal situation. According to a 2021 McKinsey study, consumers don’t just want personalization, they demand it more than ever. Investment advisors are recognizing this and looking for ways to incorporate personalization into their clients’ portfolios. Based on the results of Schwab’s 2022 Independent Advisor Outlook study, more than half the advisors surveyed anticipate clients to expect more personalization of investment portfolios. Millennial investors are leading this trend. While personalized portfolios were historically designed for ultra-high-net-worth investors due to high account minimums, advancements in financial technology have brought these offerings to investors of all means. With personalization, investors can have more control over their holdings matching their specific views. Plus, it might also lead to better investment outcomes. Poor investing behavior such as making decisions based on emotion can lead to poor results. With a personalized portfolio, investors are more likely to stick to their strategy when markets get volatile.

Finsum:As inflation and a potential recession remain on investors’ minds, advisors expect their clients to ask for more personalized portfolios.

While many hedge funds performed poorly last year, there was one strategy that had a big year, macro. According to Investopedia, a global macro hedge fund strategy is defined as a strategy that bases its holdings primarily on the overall economic and political views of various countries or their macroeconomic principles. Macro strategies performed well in last year’s volatile market, leading to strong gains for several funds. For instance, AQR Capital Management’s longest-running strategy had its best year since its inception in 1998, with the fund posting a gain of 43.5% net of fees. In fact, at least a dozen AQR funds saw record performance. AQR’s Absolute Return strategy soared 55% before fees, while the Style Premia Alternative Fund jumped 30.6%. AQR’s global macro strategy also had its best year, with a 42% gain. AGR wasn’t alone in having a strong year. Scott Bessent, who is a former Soros Fund Management investing chief, posted a 30% gain in his macro hedge fund and Chris Rokos’s $15.5 billion Macro Fund surged 51% in 2022, his best-ever gain. However, there was one notable firm that didn't perform well, Bridgewater Associates. Ray Dalio’s firm gave up much of its gains after losing money in October and November.

Finsum: Several macro hedge funds performed well last year, with at least twelve AQR funds achieving record performance.

While leads are the lifeline for any advisor, having a great selling proposition can help put advisors over the top. One advisor, in particular, realized fixed income was becoming a key part of his growth. RBC financial advisor Aaron Howe, who’s known among his colleagues as “the equity guy,” found that getting more involved with fixed income is helping him to develop and strengthen relationships with clients. The timing certainly makes sense as yields on bonds have risen with the Fed pursuing a tighter monetary policy. Howe even leads with fixed income as he talks to prospects. He believes that it’s a “win-win.” His clients are more engaged when they hold bonds from the cities and states in which they live. It has also provided him with more touchpoints with his clients. Howe stated, “People often love buying a school bond because they feel a personal connection to the investment.” Fixed income has also allowed him to take advantage of the market. He stated, “Any opportunity you have with your client to show them you are doing something for them to take advantage of the current situation– whether it’s rebalancing or tax loss selling – that’s what they’ll remember down the road.”

Finsum:A financial advisor was able to grow his practice and get more engagement with clients by getting more involved with fixed income.

Based on the results of a recent Invesco retirement income study, 83% of people with defined contribution savings plans expect it to be their largest source of income during retirement. However, some data is showing retirement portfolios were down as much as 23% last year. When you add in inflation, which is making everyday costs expensive, investors may not be able to rely on their 401k for income this year. That’s why John Faustino, the head of Broadridge’s Fi360, is recommending advisors and their clients consider the use of annuities as guaranteed income solutions in DC plans through Broadridge’s retirement income consortium. The consortium includes leading annuity providers such as Allianz, Nationwide, and TIAA, as well as data and analytics firms that work with advisors, such as Fi360, Cannex, and Fiduciary Insights. In an interview with planadviser, Faustino noted that the consortium recently “published criteria for comparing retirement income solutions contained within what we call our prudent practices, which is a collection of legislation, regulation and case law.” He also mentioned that they’re launching a software tool based on this methodology later in the year. The criteria are “designed to help advisers document their reasoning for selecting a particular retirement income solution for a plan and to help them monitor their selections and the overall process.”

Finsum:Broadridge’s retirement income consortium, made up of annuity providers and data firms, published criteria for comparing retirement income solutions such as annuities.