SEI is adding 3 new strategies to its lineup of model portfolios, using ETFs from Dimensional Fund Advisors. Now, SEI offers 24 model portfolios, encompassing a broad range of categories and styles. 

SEI launched its model portfolio offerings in 2022. Currently, the firm manages about $1 trillion in assets which include hedge funds, mutual funds, and separately managed accounts. As of June 2023, the firm had 7,400 independent advisors using its platform. 

In a statement, SEI said that the additional offerings would increase flexibility and help investors meet their objectives. It sees upside in combining SEI’s expertise in asset allocation and breadth of advisors with Dimensional’s fund management and research. 

Asset managers are increasingly boosting their model portfolio offerings for advisors. Currently, about $5 trillion of assets are managed by model portfolios with expectations that this figure will exceed $10 trillion by the end of the decade. 

Model portfolios give advisors and investors access to sophisticated strategies for minimal costs. It also allows advisors to spend less time on portfolio management and more time on servicing clients and growing their business. 

Finsum: SEI is adding 3 ETFs from Dimensional Fund Advisors to its model portfolio lineup. In total, SEI now offers 24 model portfolios to its advisors.

Category: Wealth Management; 

Keywords: #clients; #advisors; #model portfolios;

For IFA Magazine, Sue Whitbread shared some commentary from Vanguard Active Fixed Income Perspectives. Overall, the firm remains bullish on the asset class although it anticipates continued, short-term volatility, but it is looking to add exposure on weakness. In total, the firm has about $445 billion in assets under management for its active fixed income strategies.

The firm notes that macro conditions have failed to deteriorate as anticipated given a string of better-than-expected data in terms of consumer spending, employment, and GDP. On top of this, Q1 earnings also beat analysts’ expectations as companies were able to pass on higher costs with minimal impact on demand. 

Cumulatively, all of these factors have led fixed income to weaken as the market prices in additional Fed rate hikes and prices out anticipated rate cuts at the beginning of next year. Over the past couple of months, the market has lifted its estimate for the terminal Fed funds rate to 6% from 5.5% previously.  

Going forward, the group continues to believe that tighter monetary policy and slowing growth will eventually materialize and provide a massive tailwind for bonds. Given the challenging environment, it advises patience and discipline. 

Finsum: Vanguard’s Active Fixed Income Group shared its perspectives on the global economy, interest rates, and the current state of the bond market.

In its midyear outlook for the fixed income market, UBS struck a bullish tone on mortgage-backed securities (MBS) but sees most of the fixed income market staying within the range from the first half of the year.

It believes the Fed will keep hiking rates until a terminal rate of 6% given the resilience of the economy. It ascribes the recent weakness in fixed income as a result of the market calibrating to this new reality rather than a recession in the second-half of the year.

Therefore, the market consensus that 2023 would be the year of fixed income has proven to be incorrect. Until the Fed begins cutting rates, fixed income markets face a significant headwind especially shorter-duration notes. Still, UBS remains cautious that as savings get depleted, higher rates could start to eat into consumer spending and other forms of economic activity. 

Given this challenging environment, UBS recommends MBS given the underlying strength of the housing market which has remained stable due to low supply and demand driven by demographics despite substantially higher mortgage rates. 

Finsum: UBS shared its midyear outlook for the fixed income market. It shared its economic outlook and why it’s bullish on MBS.

For Bloomberg, Nir Kaissar shares his thoughts on why Blackrock’s model portfolio business is lagging in terms of adoption, and why he believes this will continue. The purpose of model portfolios is to simplify the investing landscape for investors and advisors given the abundance of funds to build a portfolio. 

Now, Kaissar believes that there are too many model portfolios which is creating additional unnecessary complications for advisors. Some advisors will stick to model portfolios from a major asset manager like Blackrock or Vanguard given a strong brand name and lower costs. 

Currently, model portfolios account for about $4.2 trillion in assets, and this is expected to double over the next 5 years. While Kaissar sees this as a positive for investors due to lower costs and more transparency, he doesn’t share the industry’s optimism about the growth trajectory of model portfolios since many advisors don’t have a financial interest in recommending the product for clients. 

In fact, many advisors would be giving up revenue if they moved all their clients into model portfolios. This is also reflected in mutual funds having an average annual expense ratio of 1.3% per year,, while model portfolios’ average expense ratios tend to be between 0.15% and 0.3% per year. Given the incentives, Kaissar believes that growth in model portfolios will fall short of expectations.

Finsum: Model portfolios are a booming part of the wealth management industry. Yet for many advisors, the incentives don’t support full adoption.

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.