The financial industry’s not just casually tweaking its monthly expense reports and wolfing down popcorn, watching as things unfold, you know.

On contraire. As it sachets toward holistic wealth management and “goal based” planning, the industry recognizes the importance of acquiescing asset management to third party strategists has mounted, according to wealthmanagement.com.

Meantime, the need to accomplish that mission is spiraling. While advisors within larger firms already can access model portfolios, now, additional options are available to their counterparts.

And, hey, model portfolios tout more than a few advantages.

For example, there’s ease of use. “Model portfolios can be used as a complete solution for investors that prefer a hands-off approach to achieving their investing objectives,” said Colby McFadden, CEO of Quiver Financial, an Investment Advisory Firm in San Clemente California, according to forbes.com.

Another: diversification. The need for a thick wad of money to pluck down on multiple asset classes? No need, said Mark Kennedy, president of Kennedy Wealth Management in Calabasas, Calf. Some can have a minimum as low as $10,000 to start.”

Recent volatility in the financial market? Sure enough. Pressure on spreads? Two for two. 

Yet, the medium term outlook for fixed income hasn’t deviated and remains relatively high, according to sageadvisory.com.

Hearty returns in core fixed come are fueled by factors such as attractive yield carry, a weak growth picture and the wraps put on the Fed cycle

And is the subject of taxes ever far behind? 

Prompted by a change in tax laws, last month, investors flocked to park their dollars in fixed income funds, according to ithought.co.in. That said, merit played no role.

In 2023, investors should find out, for example, whether the time is right to put money in fixed income. That would be a yes, the site stated. Equity, gold, real estate or fixed income are the options investors have. For equity in so much as performance is concerned, 2023 will be rough and tumble. On the other hand, participation will score big. The best performing asset of FY22-23’s gold. For investors, rather than dwelling on what went down last year, all eyes should be on taking stock of performance down the line.

Model portfolios continue to be a major beneficiary of current volatility and uncertainty as evidenced by Charles Schwab seeing $4.6 billion in inflows to its bond ETF according to an article by Bloomberg’s Carly Wanna.

These inflows are being attributed to adjustments made by a model portfolio and are offered by many large asset managers. Currently, there is no firm estimate on the size of the model portfolio industry, but manu speculate that trillions are managed through them. And, they are offered by the largest asset managers including Vanguard and Blackrock. 

But, the best indication of their size and influence is the massive inflows and outflows from ETFs which tends to happen at the beginning or end of quarters. Additionally, it’s easy to match the inflows and outflows from various ETFs. In this case, the model portfolio seems to be reaching for increased yield as it moves out of Treasuries and into lower-rated corporate debt. 

Overall, model portfolios are booming due to the strategy providing the benefits of active management with lower costs and increased transparency.

Finsum: Model portfolios are having an impact on Wall Street as evidenced by the huge inflows into Schwab’s bond ETF.

In an article for InvestmentNews, Jenny Zhang of Beyond Investments laid out a quick guide for advisors to evaluate alternative investments. It’s not surprising that interest in the asset class has soared in recent months given the various macro headwinds and poor performance for stocks and bonds in 2022. 

Another factor leading to increased interest in alternative investments is that credit is tightening up amid a slowing economy, high-profile bank failures, and a hawkish Fed. This will force many companies to seek capital in private markets, leading to more opportunities for investors in this niche. 

From an advisor perspective, it’s quite challenging especially as there is more risk and less transparency around alternative investments. The key is to understand that the asset class can be part of a diversified portfolio. 

In terms of fundamentals, advisors should first focus on a client’s specific needs and risk tolerance. Then, they should understand the size of the total market and the borrower’s collateral in the vent of a default. Additionally, two more important factors are the capital structure of the deal and its time horizon.

Finsum: Alternative investments are rapidly growing due to the uncertainty of today’s environment. Here is a quick guide on how to evaluate these investments.

In an article for AdvisorPerspectives, Larry Swedroe of Buckingham Wealth Partners discussed the conundrum of ESG investing. In essence, the asset class is currently outperforming which many are interpreting as a validation of ESG’s promise. 

Yet, Swedroe contends that this conclusion is incorrect, since it doesn’t include the effect of increased inflows. In fact, a recent study from Norway’s oil fund revealed that non-ESG stocks actually delivered superior returns over a longer time period. One potential explanation is that inflows lead to increased valuations for ESG stocks, while it leads to depressed valuations for non-ESG stocks. 

Another explanation for the conundrum is that ESG stocks are less risky, because they on balance tend to have higher compliance standards and risk-management protocols. In the long-term, stocks with higher risk profiles tend to have better returns albeit with increased volatility. 

Companies with higher ESG scores also tend to be larger than companies with lower scores. This is another complicating factor as smaller companies tend to deliver higher returns over the long-term due to the risk premium. 

Overall, investors should understand that ESG outperformance is likely to be a short-term phenomenon due to the surge of inflows. Over the longer-term, the asset class could see lower returns due to a lower risk premium.

Finsum: ESG investing is booming, and many believe the asset class will continue to outperform. Larry Swedroe explains why it’s not so simple.