Economy

Around awhile, but Direct Indexing boasts different look

While not new, direct indexing’s come a long way. Catch was, it primarily was a tool of larger investors in light of its cost and daunting technology, according to smartasset.com.

But with those hurdles easing, the site continued, the time might be right to contemplate a few things it brings to the table. For one thing, gains on stocks with an uptick in value can be deferred.

Another juicy nugget: tax efficiency, according to barrons.com. Direct indexing’s viewed by advisors as a potentially game changing tool for their firms. Powered by computer algorithms, with direct indexing, advisors can cherry pick sales of specific shares that have headed south in value.

“Tax-loss harvesting is incredibly important now and may be even more so if tax rates go higher,” noted Jim Hagedorn, managing partner at Chicago Partners. In 2019, the company began offering direct indexing.

But there are catches.

For example, active management’s a prerequisite for direct investing portfolios while it’s mostly hands off with index mutual funds and ETFs or exchange traded funds, according to smartasset.com.

And this: tracking performance can be tricky. Investors in ETF and mutual funds receive relatively easy to digest statements with a few ticker symbols to track. It’s not so simple with direct indexing. A statement might be rife with individual stocks, which could stretch into the hundreds, the site stated.

Published in Economy

ESG products might be losing their luster

According to reports, it appears the use of ESG products might no longer be in vogue.

A ballooning percentage of advisors are indicating their plans to reel back the recommendations of the investments, according to a recently published survey, reported investmentnews.com.

Of over a third of more than 400 advisors indicated they include ESG in the portfolio of clients in a Financial Planning Association survey. While that figure’s been on the uptick but has essentially stagnated over the past four years.

In the next 12 months, ESG use could turn downward, according to the 2022 Trends in Investing Survey, conducted by the Journal of Financial Planning and the Financial Planning Association, the leading membership organization for Certified Financial Planner™ professionals, reported yahoo.com.

ESG investing aligns individual principles, purpose, and values with the virtuous greater good of the human condition and the Earth. Sometimes such missions and esteemed purposes come with higher investment costs and slightly trimmed investing returns, said Dr. Preston Cherry, CFT-I, CFP-(I wouldn’t use these, but not sure about your policy), practitioner editor of the Journal of Financial Planning.

"If ESG investing has reached an inflection point, it could be due to several factors, including higher fees, lower performance, or a lack of ESG impact and index differentiation that inspires investment."

Published in Economy

Model portfolios: all that and more among financial advisors

To oversee an even larger portion of discretionary assets in light of a burgeoning spectrum of model options, a majority of advisory U.S. and Canada advisory firms are turning to model portfolios, found a survey conducted last year, according to napa-net.

-Reportedly, more than half of advised assets are in model portfolios – and over the next couple of years -- the proportion’s expected to hit 58%, reported wealthprofessional.ca. Why? Sixty five percent of financial advisors already onboard with them pointed to business scalability.

In the U.S. and Canada, six in 10 professional fund selectors say the primary upside of model portfolios stems from the fact they provide clients across the firm with an investment experience that’s more consistent, according to napa-net.

Model portfolios were offered by 84% of U.S. and Canada fund selectors in 2021, according to Natixis Investment Managers’ Global Survey of Professional Fund Buyers.

“The attractiveness of model portfolios reflects a heightened, industry-wide focus on the client experience and an evolving advisory business model that emphasizes the value of personalized planning and advice, including and beyond investment performance,” said Dave Goodsell, executive director of Natixis’ Center for Investor Insight, according to wealthprofessioal.ca.

“Models make sense, both from a firm brand perspective and for advisors managing the growth of their practice in a market that’s increasingly complex to navigate.”

Published in Economy

More...

Balance Sheet Tightening Spiking Volatility

The Fed has begun its balance sheet reductions which those in the industry have labeled ‘quantitative tightening’. QT may be a leading cause of market volatility, as has historically been the case such as 2018. While the Fed poured trillions into the economy to mitigate the effects of the Covid-19 pandemic they are pumping the breaks as a response to rising inflation. One way to gauge the impact of these measures is surveys of consumer confidence which are at their lowest levels since the 2008 financial crisis as reported by the University of Michigan survey. Some experts think this won’t have a strong impact on the rampant inflation because many of the causes are symptoms of Covid related supply shortages. As a result investors are looking at various volatility based solutions to wade the Fed’s storm.

Finsum: The yield curve has begun to flash warning signs of a recession, but maybe the Fed can still orchestrate a soft landing.

Published in Economy

Bond Inflows Amid Mutual Fund Disintegration

It’s no secret bond funds have been on a track of suffering the last couple of months, but that might be turning around especially with mutual fund competitors. The counter cyclical effects of bonds and equities have broken down. In the month of May bond mutual fund outflows increased rapidly to over $90 billion, but bond ETFs saw an increase of $34 billion. Many mutual funds have been losing slowly over time to their ETF competitors. One of the complexing aspects of this relationship is that there has been a significant increase in active ETFs in the last couple of years. The Feds impact on interest rates have really shifted the traditional 60/40 portfolio because rising rates have contributed to the spiking volatility.

Finsum: The increase in active ETFs particularly for fixed income is a direct result of the macro alpha that is more prevalent than ever.

Published in Economy

Custom Indexing Will Reshape ESG

In the U.S. the predominant view on custom/direct indexing is that it serves as a vehicle to tax-loss harvest, but overseas could be shaping the future of this innovative new product. In the U.S. the tax code lends itself to these features, but Euro area tax laws vary so differently, custom indexing is being pitched more as an impact investing tool. This has real use cases specifically for targeting greenwashing. Greenwashers rig the system to benefit from favorable lending policies when they may have no business really being a green energy company. While some amount of impact investors are piggy backing on these good environmental scores to gain return, many new investors like millennials are interested in seeing their dollars actually impact environmental progress. An empowered group impact investors can eliminate ‘greenwashers’ from their custom index, which could lead to fundamental change in custom indexing.

Finsum: While the future of custom indexing products is vast ESG has some of the best potential because investors can call their bluff.

Published in Economy