Environmental, social, and governance investing have been one of the largest sources of outperformance in the last two years, however, a mis-selling scandal could be coming to ESG investing. Most investors know mis-selling scandals from PPI, endowment mortgages, and diesel cars. ‘Greenwashing’ is not new by any means but high-profile cases with DWS and BlackRock are both escalating. BlackRock whistleblower Tariq Fancy said this could just be the beginning and that a combination of marketing hype and false promises could cause more scandal in the upcoming years. The difference will be if funds are on the hook for the language they put forth and that the Paris Agreement could be critical to holding them accountable.

Finsum: ESG investing could be reaching its peak performance, time will tell howgGovernments begin the crackdown.

A new study from Escalent details model portfolio use and acceleration since the pandemic. There has been a slow number of model portfolio adoption from third party issuers since the pandemic but those already using third party MP have had a significant uptick with over a fourth of them have seen an increase in use. However, advisors that lean on in-house production have mainly kept it that way which is a little over half of the users. Overall third-party adoption is still on the rise, and that's despite advisors' apprehension of MPs when compared to standard active management during high volatility.

Finsum: Model portfolios seem to be simplifying the advisor decision-making process, regardless of whether they are in-house or third party.

There has been an explosion in active fixed income flows in the last year. The big drivers that are pushing investors in that direction are mainly macro, as the Treasury yields have risen (lowering bond values) and passive funds haven’t moved off them rapidly enough. The other big factor is that they have flat-out outperformed. Where active equity lagged their passive counterparts data shows that almost 9 in 10 active bond funds have outperformed in the intermediate range. Overall this drove the $350 billion influx in active fond funds last year. Additionally, there were tax advantages when it came to capital gains and this efficiency was prioritized by investors.

Finsum: It's clear that the information cycle in active equity is currently outpacing the ability to beat the market, but bonds' medium-term macro influence is more predictable for active management.

In the age of ETFs, many advisors may have a harder time justifying their fees to their clients however a new study shows that the fees alone can be justified by an advisor's ability to manage the tax burden of their clients. The primary method by which an advisor can add alpha to the portfolio is by appropriating funds for their most tax-efficient purposes, such as putting taxable bonds in a tax-deferred account and allocating growth stocks to a tax-free account like a Roth. Advisors also can edge out by advising about how to optimally tax-loss harvest when it comes to their portfolio’s crypto holdings. The main way to capitalize is through taking advantage of crypto’s status as property in the wash rule.

Finsum: Everyone is dying to hold crypto right now, but most haven’t made it big; tax-loss harvesting with the Wash rule exception is an edge as long congress doesn’t adjust the rules.

Fixed-income investors are in the doldrums when it comes to today’s ultra low yield environment. Guaranteed income from CDs is just not high enough, and while bonds may be secure their value is at a valley. Laddering annuities is maybe the best strategy, but the questions are on duration. In a flat yield curve going for a short duration makes sense, and as the yield curve steepens moving to long-term contracts is more attractive. In today’s interest rate market, the goldilocks spot is around 5-years, it is a much higher return than shorter-term annuities and longer-term contracts tie your money up without much more of a return boost. The best part is you can integrate this annuity laddering strategy into IRAs and take advantage of all the tax solutions they bring to the table.

Finsum: It's critical to ladder the right duration depending on the current rate environment and given how much interest rate risk there is today it's more important than ever to be precise.