Charles Schwab, Vanguard, Fidelity, BlackRock, Morgan Stanley, and others are all launching direct indexing products and trying to rapidly spread the word, but are they actually right for as many people as they are targeting? They promise to be customizable, generate tax alpha, and are professionally managed. The most significant edge is definitely tax advantage, but its benefits hardly offset the energy and expense for the average consumer. However, for more wealthy individuals with large amounts of capital gains, it could be worth it. Specifically for very high short-term gains which are generated from hedge funds as an example. Here direct indexing has its most significant benefit.

Finsum: While companies are racing to create smaller minimums chances are the tax effect might not matter for those individuals, particularly with their lower flexibility, but for higher net worth clients it could be worth it. 

BNY Mellon is one of the biggest asset managers with $2.3 trillion in AUM, and they are expanding their offerings by building model portfolios designed for the UBS Wealth Management USA clients. They will be particularly designed to deliver more reliable results during business cycles and geared toward meeting income-generation goals with clients. The range of portfolios will come in three different income varieties: stable, strategic,  and a growth hybrid. They view this as a natural evolution of their business at BNY and they are well suited to deliver models to UBS to meet income goals.

Finsum: More investors are looking for income products and models are rapidly trying to adapt to this demand.

Jenny Johnson, CEO of Franklin Templeton, said that while times are volatile that active management ‘really pays off’. FT is one of the largest asset managers with over $1.5 trillion under management and they are one of the largest active management firms. The firm has looked to acquire firms in what they label as a ‘bolt-on’ strategy to fill in the gaps in their offerings. Their acquisitions include Legg Mason and custom indexing provider O’Shaughnessy Asset Management. They are looking mostly into technology and alternative products to tie up loose ends. Johnson cited macro headwinds like Ukraine and the Fed’s hike as large macro factors generating volatility along with Covid spikes in developing countries, but their strategies are well suited to handle volatility.

Finsum: Active fixed income has a bigger advantage in high volatility than its equity counterparts, but still it could prove to be a picker’s market. 

Macro conditions have left many investors skittish regarding the future of fixed income funds, but BlackRock is firm in its belief in the future of Fixed Income ETFs. BR said that despite headwinds from rising rates and inflation they expect bond ETFs to surpass $2 trillion in the next year and a half and to hit $5 trillion by 2030. While the current environment doesn’t make investors ecstatic about the bond market future, many overlook the traditional role they fill in a portfolio: stability. That resilience especially during volatility and the ultra-low rate environment has proved useful enough for many investors.

Finsum: ETF trends have been amplified by the pandemic and will be enduring moving forward.

You’d have to be completely blind to miss the market gyrations as of late, but the question remains which funds can you lean on in times like this? VIX only funds miss the boat because they have bad long-run historical performance and rely on timing the market, whereas volatility minimizing ETFs do a better job at hitting long-term targets. Dividend funds like SPHD from Invesco try and minimize volatility while still giving income exposure. A similar fund without the dividend is the IShares MSCI USA Min Vol ETF (USMV) which tracks lower volatility stocks. The advantage of these funds is that once volatility is gone they still provide potential upside so you aren’t guessing about volatility swings.

Finsum: While the VIX is a great market gauge it’s far from a stable long-term investment on its own, other volatility strategies can be more effective.