AllianceBernstein launched 4 new fixed income ETFs. With these new issues, AllianceBernstein now has 7 active fixed income ETFs and a total of 12 ETFs. The firm entered the ETF market in 2022 with the Ultra Short Income ETF and the Tax-Aware Short Duration ETFs. These now have assets of $587 million and $290 million, respectively.

Two of the new ETFs - the Tax-Aware Intermediate Municipal and Tax-Aware Long Municipal - invest primarily in municipal bonds and have a 28-basis points expense ratio. Its other fixed income ETF launches are the Corporate Bond ETF and the Core Plus Bond ETF. The Corporate Bond ETF invests primarily in US dollar-denominated corporate debt issued by US and foreign companies. The Core Plus Bond ETF will invest primarily in corporate bonds and mortgage and asset-backed securities. These ETFs have an expense ratio of 30 and 33 basis points, respectively. 

As of December 1, active fixed income ETFs had a total of $169.8 billion in assets and $30.1 billion of net inflows according to Morningstar. In contrast, passive fixed income ETFs had total assets of $1.3 trillion and net inflows of $169.1 billion. The higher ratio of net inflows to assets for active fixed income indicates that the category is making up ground with passive fixed income.

Finsum: AllianceBernstein is launching 4 new active fixed income ETFs. Overall, active fixed income is much smaller than passive fixed income, but the gap is shrinking.

There was an inflection point for financial markets in October. Soft inflation data resulted in a change in consensus as Fed futures now indicate that the Fed’s next move is more likely to be a rate cut rather than a hike. One of the biggest winners of this dovish shift has been small-cap stocks as the Russell 2000 is up 12.1% over the last 90 days and 8.5% over the past month. Another reason for interest in the sector is that valuations are at historically low levels.

In theory, rate cuts are bullish for small-cap stocks since they lead to lower financing costs, puts upward pressure on multiples, and tends to be a leading indicator of an increase in M&A activity. In reality, rate cuts are often necessary due to a weakening economy. Thus, a major variable in whether small-caps deliver stellar returns is whether inflation can continue to moderate without the economy tumbling into a recession. 

According to Mike Wilson, CIO and chief US equity strategist for Morgan Stanley, investors should pay close attention to earnings revisions, high frequency economic data, and small business confidence. At the moment, all of these measures are moving in the wrong direction. He adds that for small-cap outperformance to continue, GDP needs to reaccelerate, and inflation needs to stabilize at current levels. 

Finsum: After years of underperformance, small-cap stocks are seeing huge gains on rising odds of a Fed rate cut next year. However, continued outperformance for the sector depends on certain variables.

Energy stocks underperformed in 2023 due to supply being stronger than expected, while demand was muted due to softer economic growth in Asia and Europe. For next year, Maurice FitzMaurice, Fidelity’s energy sector portfolio manager, is bullish on the sector as he sees oil prices remaining high. Additionally, he expects increased investments in international and offshore production. 

While many are focused on the recent decline in oil prices, FitzMaurice believes that fundamentals support higher prices, and he points to low levels of CAPEX over the past decade as a major factor. Even though investment in production has recently increased, it will take years for it to come online and meaningfully impact supply. He predicts that US shale production will see slower growth due to higher costs and less productive wells, and OPEC will remain vigilant to support prices. 

In terms of subsectors, he favors energy equipment and services companies. He believes that more investment is required to meet the world’s need for oil, and higher levels of CAPEX should persist for multiple years especially given nearly a decade of underinvestment. Additionally, there is limited capacity in these subsectors which should result in significant pricing power and higher margins. In terms of which companies to target, he advises seeking out companies trading at discounted valuations, a healthy balance sheet, and a disciplined approach to capital allocation that has some sort of competitive advantage. 

Finsum: Fidelity’s energy sector portfolio manager shared his outlook for the sector next year. He is most bullish on energy services and equipment stocks due to the start of a multiyear investment cycle. 

Morningstar Investment Management (MIM) shared its 2024 outlook for financial markets. It’s particularly bullish on fixed income due to attractive valuations, generous yields, and falling inflation. Within the asset class, it likes developed market bonds, emerging market debt, and inflation-linked fixed income. 

While it sees more upside for long-duration bonds, it sees value in shorter-duration bonds for more risk-averse investors especially given that geopolitical risk will likely remain elevated in 2024. However, the yield curve is inverted which is typically a leading indicator that rates, and inflation are going to trend lower. Both developments would be more favorable for longer-duration fixed income. 

It also sees bonds returning to their traditional role of dampening portfolio volatility by providing a hedge against equities and meaningful income to investors. Due to the rise in yields, investors no longer have to take on risks in search of income as they often did during the previous decade. 

In regard to corporate bonds, it sees downside risk in the event of a recession as they are ‘priced for a slowdown, not a recession’. MIM is also concerned that high rates could erode company fundamentals especially in an environment of declining revenue and earnings. Thus, it recommends keeping a close eye on credit spreads and high yield bonds

Finsum: Morningstar Investment Management shared its 2024 outlook. It’s bullish on fixed income, specifically long-duration government bonds but more cautious on corporate debt given the risk of an economic slowdown turning into a recession.

According to a study from Cerulli Associates, independent and hybrid RIAs are seeing the most growth in advisor headcount compared to other channels. This same trend is evident across larger time frames as well and an indication that independence is an enticement for advisors. 

Over the last decade, the number of independent RIAs has grown by a 2.4% annual rate, while the number of advisors working at independent RIAs has increased by an annual rate of 5.2%. Over the next 5 years, total advisor headcount is projected to remain flat, but independent and hybrid RIAs are forecast to see more gains in advisor headcount. And independent and hybrid firms are projected to control 31% of intermediary market share by 2027.

Some of the reasons that independent and hybrid RIAs may appeal to advisors are more flexibility and higher payout percentages. In contrast, the more established firms offer the leverage of corporate scale in addition to access to technology, training, and resources. 

A survey by Fidelity of advisors in October had similar findings. Over the past 5 years, 1 out of 6 advisors had switched firms. Independent RIAs were the top destination. 94% of advisors who switched firms were happy with the decision, and 80% reported growth in assets under management. 

Finsum: Independent and hybrid RIAs are seeing continued growth in terms of advisor headcount at a time when total growth in headcount for the industry is flat.