Direct indexing has gone from an obscure strategy only utilized by a handful of ultra wealthy investors to one that is accessible to all types of investors. In fact, many see it as the next evolution in passive investing as it captures the major benefits such as low costs and diversification. But, it also has some additional benefits such as tax savings and greater customization. According to a recent Morningstar report, tax management is cited as the number one reason that investors are increasingly choosing direct indexing. .

Currently, there is $260 billion in assets under management that is managed via direct indexing. The most common application is to simply mimic a popular benchmark like the S&P 500 or the Russell 2000. Others will endeavor to create their own index around certain themes such as ESG or companies creating jobs in the US.

Beyond surveys, the arms race in direct indexing also indicates its growing importance. Vanguard made the first acquisition in its history when it bought Just Invest and renamed it Vanguard Personalized Indexing Management. The firm sees it as one of its key growth drivers in the coming decade. Similarly, Blackstone bought Aperio, while Morgan Stanley acquired Parametric Portfolio Associates as part of its Eaton Vance purchase.

Finsum: Direct indexing has many benefits, but tax savings is the most common one cited by advisors and clients in a recent survey.

The cultivation of talent’s come a long way. Baby.

At its center: succession planning, according to sigmaassessmentsystems.com.

SIGMA – with the intent of providing organizational leaders with a snapshot of what’s unfolding today in succession planning – produced a report on where things stood this year. Several emerging trends were revealed: 

Most organizations are focused on recruiting and retaining staff.

Many organizations recognize that they must keep up with industry innovation.

Many leaders are committed to improving customer experience.

A significant number or organizations want to transform their brand and culture

Interestingly, new financial advisors are setting a high rate of bolting from the industry, according to a Cerulli Associates report, reported financial-planning.com.

The importance of new talent in wealth management is further stoked given the fact financial advisors, who oversee trillions of dollars of assets, are riding into the sunset.

Yet, those making their maiden voyage into the profession aren’t exactly being received with a steaming mocha latte and scone, according to Cerulli, which reported that while 13,169 of new trainees left the industry in the rearview mirror, offsetting the more than 18,000 it picked up,

In a piece for Marketwatch, Michael Brush covers an interesting dichotomy regarding the energy sector. Billionaires like Warren Buffett and company insiders are bullish as evidenced by their large buys since the beginning of the year. However, broader investor sentiment towards the sector remains bearish as evidenced by its low valuations and middling performance this year. 

 Brush believes that the odds favor insiders and Buffett being correct. He also notes that energy stocks are cheap relative to their price to earnings ratios on a 5-year average basis. He also sees OPEC+ cuts over the past few months as a bullish catalyst and notes some unusual factors for why they haven’t been effective in pushing prices higher already. 

He believes that another bullish factor for energy is the relatively low amount of CAPEX. In 2022, investments in oil production were 40% below 2014. This is another positive tailwind for energy prices especially as demand should continue to remain resilient given that the US has so far avoided a recession.  

He recommends seeking out energy stocks with strong patterns of insider buying, low valuations, and above-average yields and expects the sector to outperform in the second-half of the year.

Finsum: Energy stocks are exhibiting low valuations, insider buying, and aggressive buying by billionaires like Warren Buffett. 

For ThinkAdvisor, John Manganaro discusses how advisors are increasingly seeing that direct index offerings are essential for high net worth clients given the enhanced after-tax returns. However, it has typically been only used with equities but there are also similar opportunities with fixed income. 

By now, most are familiar with direct indexing for equity portfolios. Essentially, it offers the benefits of index investing such as diversification and low costs while allowing for more customization and potential tax savings. 

On the fixed income side, direct indexing can allow investors to customize bond portfolios along their desired parameters such as income, duration, geography, or tax profile. There is also the potential for tax-loss harvesting during periods of volatility or bear markets to offset capital gains in other areas. 

It’s estimated that direct indexing assets will grow from $260 billion at the end of last year to $825 billion by 2026. Typically, direct indexing adds 30 to 50 basis points of excess returns although the amount can be greater in years with more volatility. For advisors, it’s a way to offer a value-added, low-cost service with greater personalization.

Finsum: Direct indexing assets are forecast to nearly triple over the next couple of years. Most are familiar with its use for equities but it is also being increasingly applied with fixed income.

At the VettaFi Fixed Income Symposium, Todd Rosenbluth hosted a conversation between Stephen Laipply, the global co-head of iShares fixed income ETFs and Anmol Sinha, fixed income investment director at Capital Group. The conversation spanned a wide array of topics regarding the advantages of investing in fixed-income through ETFs.

Both also spoke of the recent growth in active fixed income ETF offerings, and why they are bullish on the category going forward. However, they rejected the binary of being an active or a passive investor and instead see a role for both strategies in a portfolio.

Active fixed income ETFs allow investors and advisors to better achieve specific goals such as exposure to a certain segment of the market or take advantage of market inefficiencies. Both are in favor of pairing an active ETF with a passive one to achieve ‘total portfolio exposure’. 

Fixed income ETFs are outpacing equity ETFs in terms of inflows over the last couple of years due to yields at their highest level in decades and a shaky economic outlook. Within the fixed income ETF universe, active strategies are seeing the most growth as they have outperformed amid recent volatility and advisors and wealth managers are becoming increasingly comfortable with the asset class.

Finsum: At the Vettafi Symposium, there was a discussion centered around fixed income ETFs and their future outlook. Regarding active vs passive ETFs, there was agreement that both are complementary rather than competing.