In the past five years, direct indexing has become a valuable tool for advisors to personalize client portfolios, addressing unique tax and asset allocation needs. Between April 1 and May 1, 2024, FTSE Russell partnered with RIA Channel to conduct a survey of over 600 advisors from various firms...[Read More]

The T. Rowe Price International Equity ETF (TOUS) is an active ETF that has gained attention for its diversification benefits, especially after a recent market sell-off. With a competitive 50 basis point fee, TOUS focuses on high-quality international firms with strong business models and good valuations. 

TOUS has an active strategy built around macro factors through an international lens that uniquely positions it for the type of interest rate volatility the US is experiencing. 

The fund’s active management allows for flexibility in selecting companies, particularly in non-U.S. markets, which could be advantageous during volatile periods. TOUS has returned 9.8% over the past year, making it an appealing option for diversification away from U.S. mega-caps.

Finsum: We’ve been banging the drum on the need to diversify into active funds during this volatility and this recent flash was an example why. 

SEI has expanded its suite of Separately Managed Accounts (SMAs) and Unified Managed Accounts (UMAs) by introducing new strategies focused on direct indexing and factor-based investments. These additions include fixed income strategies, such as the Systematic U.S. Aggregate Bond Core and the Systematic Municipal Bond Core, as well as equity options like the Systematic U.S. Dividend Yield Core and the U.S. Dividend Yield Multi-Factor SMA. 

These offerings aim to help advisors serve mass-affluent, high-net-worth, and ultra-high-net-worth clients with tailored solutions that offer flexibility and tax optimization.

The move comes as UMAs gain popularity, with assets growing at an annual rate of 34% over the past five years, according to Cerulli. SEI’s expansion aligns with broader industry trends, as other major players like Envestnet and Dimensional.

Finsum: An SMA makes a lot of sense for direct indexing options given the tax implications.

The asset management industry is seeing a significant shift towards Separately Managed Accounts (SMAs), with assets growing by 30% over the past two years, according to Cerulli Associates. This growth is expected to continue, with projections suggesting SMAs will reach $3.6 trillion in assets by 2027, up from $2.4 trillion today. 

SMAs offer tax advantages and personalization options that are appealing to investors, allowing them to hold individual securities and tailor portfolios to their specific needs. SMAs are particularly useful for strategies that benefit from direct ownership of securities, such as tax-loss harvesting and options overlays, which can enhance after-tax returns and generate additional income. 

The rapid innovation in this space means that SMAs are becoming an increasingly attractive option for investors looking for a personalized approach to asset management.

Finsum: We expect the SMA boom to continue with trends in both demographics and wealth management in the US, so familiarity is key.

Investors remain concerned about how inflation could affect their portfolios. Despite the Federal Reserve's efforts, inflation remains elevated, making it a good time to consider adding inflation hedges to your investments. Here are three top inflation hedges to protect your portfolio:

1. TIPS (Treasury Inflation-Protected Securities): These U.S. government bonds adjust their interest rates with inflation, providing a reliable safeguard for bond investments.

1. Floating-rate bonds: These bonds adjust their payouts with rising interest rates, offering protection against inflation. You can access them through ETFs or mutual funds for added diversification.

1. Real estate: Investing in a house with a fixed-rate mortgage can hedge against inflation. If a house directly isn’t possible SFR or REITs are great options. 

Avoid long-term fixed-rate bonds and cash savings as they lose value in real terms during high inflation.

Finsum: Inflation still remains above the official Fed target and with a potential slew of cuts coming, inflation could spark again. 

Investors concerned about exchange-traded funds (ETFs) with options overlays limiting returns should consider the benefits these strategies offer. According to Tony Rochte, Morgan Stanley’s global head of ETFs, options serve as a hedge against significant losses, offering downside protection even if upside gains are capped. 

This approach encourages investors to re-enter the broad-based equity market, reducing their exposure to fixed-income products. Alison Doyle, Nasdaq’s head of ETP listings, highlighted the growing popularity of active ETFs, with over 75% of all ETF launches in 2023 being active. 

Among these, a significant portion included options-embedded strategies, providing additional risk management tools. This trend shows a shift from traditional fixed-income investments to risk assets.

Finsum: With stocks and bonds becoming more correlated, investors should consider outside strategies like overlays to hedge. 

U.S. crude oil futures dropped to around $73 per barrel amid widespread concerns of a looming recession. West Texas Intermediate (WTI) crude oil, now up less than 2% for the year, and Brent crude, slightly down for 2024, saw declines despite earlier gains fueled by Middle East tensions and anticipated market tightening. WTI reached six-month lows earlier in the session. 

The energy prices for the day showed WTI at $72.84 per barrel and Brent at $76.30 per barrel. The downturn followed disappointing U.S. job growth and continued manufacturing sector contraction. 

Adding to the market's unease, China's weaker imports and refinery utilization rates have also impacted sentiment. OPEC+ might reconsider increasing production in October, with potential cuts depending on market conditions. Geopolitical risks persist, notably with rising tensions between Israel and Iran.

Finsum: Weak demand is very common leading into recessions, but with rate cuts around the corner now might be the time to buy energy stocks.

Goldman Sachs Asset Management has rolled out the Goldman Sachs Access U.S. Preferred Stock and Hybrid Securities ETF (GPRF), marking its fifth ETF launch in 2024. This new fund targets high monthly income by investing in U.S. preferred stocks and hybrid securities, which currently offer yields between 6-7%, benefiting from the expected Federal Reserve rate cuts.

This strategy is designed to maximize yield while providing diversification benefits, as preferred stocks typically have lower correlations to core investment-grade fixed income. 

Following the fund’s introduction, GPRF has quickly accumulated nearly $20 million in inflows. The launch of GPRF complements Goldman’s ongoing expansion into municipal bond ETFs, adding to the firm’s growing portfolio, which now includes 43 ETFs.

Finsum: ETFs are an interesting way for investors to get exposure to preferred stock. 

Wealth managers rely heavily on platforms such as broker/dealers and custodians, with many considering switching due to operational needs or better financial arrangements. Additionally in a new study, a staggering 85% are willing to change for the right opportunity, but most don’t actively plan to make changes by 2025 or 2026, as inertia and the demands of their practices often hold them back. 

Successful managers are more likely to switch platforms, driven by the need for enhanced operational support and favorable terms. Factors like financial arrangements, operational quality, and business development support are key in deciding platform affiliation.

Strategic relationships, particularly with centers of influence, are also critical for sourcing ideal clients. Wealth managers must critically assess platforms’ offerings and strategic positioning to ensure they meet their needs.

Finsum: It’s really critical that the broker dealer is offering as many business development opportunities so advisors can succeed. 

A proposed California bill is aiming to tighten oversight of private equity investments in healthcare, requiring these firms to obtain state approval before acquiring medical businesses. This type of regulation would significantly slow down medical and healthcare acquisitions for PE in a crucial state, which could have severe consequences for the industry. 

Backed by unions, consumer advocates, and the California Medical Association, the legislation addresses concerns that private equity deals often lead to higher costs, reduced care quality, and decreased access to essential services. However, hospitals and other opponents argue that such regulations could deter much-needed investments. 

The bill, while excluding for-profit hospitals, targets a broad range of healthcare entities, reflecting increased scrutiny of private equity’s impact on the sector. Proponents see the measure as crucial for safeguarding patient care, whereas critics warn of potential adverse effects on healthcare funding. 

Finsum: There is a lot of money for private equity on the sidelines right now, hopefully regulation doesn’t slow down what could be a huge fall quarter.