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. 

California saw its gas prices spike to $6 a gallon, but the Golden state might not be the only one feeling the pressure at the pump. JPMorgan’s global oil and commodities research head warned that there is a risk of national $6+ gasoline. The increase in prices is in no doubt a reflection of the ongoing Russia-Ukraine war, but also US inventories are at the lowest levels in over three years. States like Kansas, Oklahoma, and Georgia with extremely low gas prices have breached the $4 threshold and it could get worse. Inventories are especially bad on the East Coast where they are at decade lows. Other forecasters are predicting many American particularly those with access to public transit will drive less if gas prices continue to creep up and aren’t forecasting $6 prices.

Finsum: This is an opportunity to look to commodities but particularly oil & gas companies' debt as a fixed income option, these prices will make paying back relatively easy.

AllianceBernstein is moving forward with the development of two new ETF products and they are meeting the demands of the market. There has been a sharp uptick in active management particularly in the bond ETF segment in the post-pandemic environment. The predominant view is that managers are better suited at picking winners with macro-flare proving so effective. The two portfolios they are launching are coming in an ultra-short income offering which will have a combination of government and investment grade corporate debt. As well as a tax-aware short-duration ETF. There has also been a shift towards shorter duration bond funds as a response to a rise in interest rate risk.

Finsum: With the Fed stomping on the gas pedal, if inflation comes under control quickly longer duration debt could be under-priced.

Very few investment trends have caught on as rapidly as model portfolios which have seen widespread adoption, but this could be lowering asset flexibility. Model portfolios seek a variety of metrics for assets to be added to the fund. Assets may be excluded for categorical or qualifying reasons which can lead to a lack of adoption and lower returns. The selection bias in models leaves meat on the bone for investors and can keep them from getting exposure to products like covered calls or other investments.

Finsum: Model portfolios have their place, but they could create an inefficiency where some products are given their proper value. 

Financial companies are rushing to deliver low initial investment direct indexing products to investors, but is DI here to stay? The benefits of custom indexing are obvious: It gives ESG investors an opportunity to punish the greenwashers of their own volition, and optimizers a chance to gain tax alpha easily. However, this isn’t free; investors usually pay much higher fees than traditional ESG funds and the minimum investments are usually high. For the few funds without high initial investments, investors get very little if any flexibility in dropping assets from their portfolio. Now they aren’t an ‘active- wolf’ in sheep's clothing, but those are real drawbacks investors should consider.  In the long run, we will see a combination of lower fees with more accessibility as competitors enter the market, and direct indexing could be here to stay.  

Finsum: Direct indexing isn’t for everyone…for now, but as fees shrink, and minimums drop more investors should consider adding them to their portfolio.