Stocks whose prices trail their implied intrinsic value are often seen as attractive investments primarily due to their undervaluation. But a recent article by Vanguard suggests another reason value stocks may be worth considering now. Historically, value stocks have outperformed their “growth” counterparts in times of economic recovery.

The report quotes Kevin DiCiurcio, CFA, head of the Vanguard Capital Markets Model® research team, as he makes the case. “So, if you believe that the Federal Reserve may have engineered a soft landing—that we’re going to sidestep a recession and that the economy’s next move is an acceleration—the case for value is strengthened.”

According to their research published in August, 2023, Vanguard estimated that value stocks were priced more than 51% below their fair value prediction. They stated, “It’s well-known... that asset prices can stray meaningfully from perceived fair values for extended periods. However, as we explained in (previous research), deviations from fair value and future relative returns share an inverse and statistically significant relationship over five- and 10-year periods.”

This observation adds one more reason value stocks are worth a look. In addition to favorable valuations and historically consistent dividends, the possibility that value stocks may shine during the coming economic recovery many anticipate, is another factor to consider. Whether held directly, within a passive allocation, or as part of a Separately Managed Account, now is a perfect time to revisit the case for value stocks in your client’s portfolios.

Finsum: Vanguard's research highlights value stock historical outperformance during economic recoveries.

In a recent J.D. Power study on financial advisor satisfaction, findings reveal advisors are facing challenges in effectively managing their practice tasks. The study highlights that "nearly one-third (28%) of financial advisors say they do not have enough time to spend with clients."

Further, the report states that "Advisors falling into this category spend an average of 41% more time each month than their peers on non-value-added tasks, such as compliance and administrative duties."

Broker-dealers and custodians are constantly exploring ways to reduce these administrative burdens in hopes of retaining existing advisors and recruiting new ones. However, the study underscores another essential factor driving advisor satisfaction: culture.

One significant takeaway from the report is the motivation behind advisors' loyalty to their firms. Among employee advisors, the predominant reasons they gave for their long-term commitment are "a strong culture and company leadership."

Culture can mean different things to different people, but most agree it's about purpose, values, how we communicate, and our work environment. Given how these factors play a significant role in our daily happiness, it's no wonder why advisors regarded culture so highly in the report.

Finsum: A study from J.D. Power highlights challenges faced by financial advisors, emphasizing the importance of culture in advisor retention and satisfaction. 

Following the recent selloff in the bond market which has pushed yields on the 10-year Treasury above 5%, Michael Contopolous of Bernstein Advisors compiled some of the best opportunities that he’s noticing in fixed income. 

The first is Treasury Inflation-Protected Securities (TIPS) which are offering a real yield of 2.5%. This is the highest level since 2007 and in the 25th percentile of real yields since TIPS were introduced in 1997. In contrast to most fixed income securities, TIPS would see an increase in returns if inflation expectations were to rise. 

Currently, the spread between the 10Y and 2Y Treasuries is inverted. If the economy experiences an acceleration or a sharp turn lower, it’s likely that the curve will steepen. Thus, fixed income investors can consider a steeper curve. It can have a bullish or bearish tilt depending on an investors’ economic outlook.

Another area of opportunity is preferred securities which are priced much lower than corporate bonds following the regional bank crisis earlier this year. There's a particular opportunity in the preferred share of banks which could rally if the yield curve steepens, or earnings start to grow again. 

Finsum: Fixed income is seeing renewed interest following the recent selloff. Here are 3 opportunities to consider.

According to Travis Spence, the head of ETF distribution at JPMorgan Asset Management, future growth in the ETF industry will be driven by active strategies that will be the main source of innovation in the space. 

Currently, active funds only account for 5% of the total market but account for 25% of inflows. Some of the reasons that investors are favoring active ETFs is greater transparency, liquidity, and pricing. Thus, he believes that more active strategies will be accessible through ETFs in the coming years. And he sees growth in the US and internationally, although adoption has been slower in the latter. 

In fixed income, he believes that active managers have some advantages due to greater inefficiencies in the market and increased difficulty and constraints of tracking a fixed income benchmark. Additionally, many market cap-based indices are overrepresented with indebted companies. 

He added that, “It is easy to see why an active approach to fixed income makes sense. Even passive ETFs are arguably active due to the availability of bonds. Having an active approach in fixed income, where you do not automatically hold the most indebted issuers, fully integrate ESG and actively manage turnover and transaction costs, can offer an attractive solution for investors.”

Finsum: JPMorgan’s head of ETF distribution, Travis Spence, shares why he’s optimistic about active fixed income, and the trends driving its growth. 

Financial advisors intuitively grasp the importance of planning to help their clients reach their financial goals. As business owners, advisors need to apply the same principles with succession planning to maximize the value of their practice. A succession plan should provide a contingency plan for unforeseen circumstances in addition to detailing how the practice will transition in the future. Here are some common mistakes to avoid.

The first mistake is to not have a proper understanding of the value of your practice. This includes financial as well as other considerations such as the impact on your clients, the organizational structure of your firm, and how the firm will function without you.

Another mistake is to be unclear clear about your needs and wants in order to determine the ideal successor. With this selection, it’s important to find alignment in terms of investment philosophy, location, mission statement, and how they will continue to serve your clients effectively.  

Many advisors also err by not sharing their succession plan with key stakeholders like employees, clients, family members, etc. Rather, the succession plan and any iterations should be shared with everyone to ensure that there is no lack of clarity. It can also help with client retention and recruitment. 

Finsum: Succession planning is quite important for financial advisors for several reasons. Here are some mistakes to avoid. 

Alternative energy is forecast to grow rapidly in the coming years due to government subsidies and continued innovations which continue to drive power-generation costs lower. However, the bottleneck for the growth of the industry is proper infrastructure to store and transmit this power.

It’s also necessary as some types of alternative energy production such as wind, solar, and hydropower are adversely affected by weather. Until this goal is sufficiently solved, the world will continue to remain dependent on fossil fuels. 

Investors have several options when it comes to investing in the growth of the energy storage industry. One is to own stocks of companies in the supply chain whether it means producers of metals like Albemarle, EV and battery producers like Tesla or BYD, or a provider of energy storage software, solutions, and services like Fluence Energy. 

Another option is to invest in ETFs like the Global X Lithium & Battery Tech ETF (LIT), the First Trust Nasdaq Clean Edge Smart GRID Infrastructure ETF (GRID), or the First Trust Nasdaq Clean Edge Green Energy Index Fund (QCLN). These are diversified, lower-cost ETFs that offer exposure to the energy storage theme and offer exposure to the largest companies in the space. 

Finsum: Alternative energy is booming, but it also requires sufficient investments in energy storage to support its growth. 

A well-crafted value proposition details how your services will solve client’s problems and improve their financial situation, what benefits it will deliver, and why your target prospect should choose you over a competitor. Defining this value proposition can help improve your odds of success in recruitment and operating your practice. It can also help you build trust with clients. 

An important step in the process is to determine your ideal client profile. Some characteristics to consider are their financial goals, challenges, and demographics. This will help you decide how to serve these clients, to address their needs and differentiate yourself from competitors.

Value propositions are necessary in an industry where success is based on trust and relationships. Some things to avoid are complicated language, a lack of focus on clients, and not sufficiently identifying what makes your services unique. 

Lastly, value propositions should be updated regularly to reflect changes in the practice, industry, and your clients. It should continue to highlight your value and uniqueness while remaining relevant in terms of addressing your clients’ pain points. 

Finsum: Defining your unique value proposition can help your firm attract clients and refine its purpose. Here’s how to get started. 

Despite a brutal selloff in fixed income, Vanguard sees upside for parts of the asset class given the opportunity to lock in high rates and likelihood that we are in the final stages of the Fed’s hiking cycle. It anticipates a shallow recession in the middle of next year and believes that bonds once again offer diversification and positive returns for investors.

It favors high-quality IG corporate debt due to the strength of corporate balance sheets, as many companies took advantage of ultra-low rates in 2020 and 2021. In recent months, the category has endured significant selling especially as long-duration assets have been hit hardest. 10-year Treasury yields recently exceeded 5% which is the highest level since 2007 amid a spate of positive economic data.

Vanguard is neutral in terms of exposure to lower-grade corporate debt since many of these companies will need to raise capital in a high-rate environment and deal with increased competitive pressures in some sectors. It also sees opportunities in mortgage-backed securities due to its low default risk, diversification, and liquidity. It also favors longer-duration municipal bonds rated below AAA. 

Finsum: Vanguard believes that investors should stay the course when it comes to fixed income despite the recent selloff. It sees more opportunity in particular segments.  

The steady stream of brokers exiting Merrill Lynch continues as the Ruccio Group, based in Miami and managing $1.37 billion, left for RBC Wealth Management. The team is led by Jeremy J. Ruccio and is composed of 2 advisors and 6 client associates. 

In a statement, Ruccio attributed the decision to wanting to retain the group’s personalized attention and smaller firm feel with the resources, leverage, and insights of a global financial institution. Ruccio started at Merrill Lynch in 2008 and was ranked #24 on Forbes’ best in state wealth advisors list this year and #29th on the America’s best next generation wealth advisors list in 2021.

Currently, RBC has around 2,100 brokers and has $544 billion in client assets. Although its wealth management division is smaller than many of its peers, it’s had success in recent years luring brokers from larger firms. To compare, Merril Lynch and parent company, Bank of America, have over 19,000 advisors across its wealth management division. 

Last week, it lured a $450 million team from Morgan Stanely which was based in Philadelphia. In September, it recruited a 41-year Merrill broker who managed $340 million in assets. In the prior month, RBC landed a UBS team based in Atlanta which had $5.5 billion in client assets and $22 million in annual revenue. 

Finsum: RBC is having success luring brokers from larger competitors. It recently landed the Ruccio Group, based in Miami which manages $1.37 billion in client assets.

Financial markets are increasingly complicated these days given the uncertainty regarding inflation, monetary policy, and the economy’s trajectory. For investors, the challenge is heightened as both equities and bonds have become increasingly correlated. In a piece for Pension & Investments, MFS Investment Management shared why active fixed income makes sense in this environment and detailed the firm’s approach.

According to Pilar Gomez-Bravo, the co-CIO of fixed income at MFS, “With this macro backdrop and the uncertainty around central bank policy, alpha generation from active management will be a more important factor for most fixed-income investors going forward.” 

With increased volatility, MFS recommends that fixed income investors ensure that they are sufficiently diversified to minimize risk by properly balancing duration and default risks. Its active management strategy is based on collaboration between its investment teams, consistency in its investment process, a focus on generating alpha throughout the cycle, and conviction in taking action when there are dislocations in the market.

Some other elements of the firm’s active fixed income approach is to manage and structure the portfolio to express a broad view and diversity of thought. Each portfolio is stress tested to ensure resilience, while the fixed income team stays connected to the equity team to get a holistic view of the markets and economy.

Finsum: Active fixed income is seeing a substantial increase in inflows given relatively high yields, while there is considerable uncertainty about the economy and monetary policy.