High Yield Bond ETFs have seen a resurgence in inflows over the past few months. Between September 9th to December 9th, $5.4 billion in capital moved into 53 high-yield bond funds that are part of ETF Central’s high-yield bond category. This includes inflows of $2.7 billion over the past month. The uptick in inflows suggests that investors are more willing to take on risk now. High-yield bond ETFs may have higher rates and return potential, but also come with greater default risk. The jump in flows can be attributed to lower-than-expected inflation data, which could lead investors to believe that the Fed might slow down its tightening cycle. For instance, the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1 percent in November on a seasonally adjusted basis, after increasing 0.4 percent in October. In addition, many investors have been sitting on the sidelines due to the uncertainty in the market and waiting for the time to deploy cash into riskier investments such as high-yield bond ETFs. Plus, the spreads in high-yield bonds have been widening this year, which indicates lower prices and selling pressure on the category. With spreads still fairly wide, there is potential for more upside in high-yield bonds.

Finsum:High-yield bond ETFs are seeing a jump in flows on account of lower-than-expected inflation data, cash on the sidelines being put to use, and fairly wide spreads in high-yield bonds.

Merrill Lynch continues its recruitment of veteran advisors with the announcement that it lured away a duo managing $180 million in client assets from Morgan Stanley. The two-person team from Huntsville, Alabama is made up of 26-year veteran Lane P. Wilson and 15-year veteran Teri E. Miller. The pair, which joined Merrill on December 9th, produced more than $1 million in combined annual revenue. At Morgan Stanley, they had been part of a larger team called the Monte Sano Group. At least 11 members of that group remained at Morgan. Wilson started his career at MML Investors Services in 1996, moved to Compass Brokerage two years later, and then moved to Wells Fargo Advisors in 2006. He spent the following 13 years at Morgan Stanley. Miller, who had also been with Morgan Stanley for 13 years, started her career at Invest Financial Corp. in 2007. The office they are joining is part of Merrill’s community markets program that launched in 2018. The program is aimed at growing and retaining brokers in branches outside of Bank of America’s footprint. According to recruiters, Merrill returned to hiring traditional brokers from its rival wirehouses with high-end deals over the summer.

Finsum:Merrill Lynch reeled in a duo from Morgan Stanley that manages $180 million in client assets.

Institutional investor portfolios are expected to look very different next year. For the first time in years, short-term government bonds are yielding more than 4 percent. This could lead to widespread changes in asset allocation, as investors won't have to allocate as much to equities. When rates were near zero, institutional investors had more stocks in their portfolios than they would have liked as a higher equity allocation brought on more risk. But now that yields are much higher, investors can once again allocate to fixed income. Even CDs are yielding nearly 4 percent. Mike Harris, president of the quantitative manager Quest Partners told Institutional Investor that “When central banks were printing money and forcing rates close to zero…people said, ‘We don’t want any fixed income in the portfolio,’ which is crazy to me. It’s been a building block of traditional portfolios for as long as I can remember. Investors were adamant about finding ‘somewhere else to park that capital,’ even if that meant taking on unwanted risk.” Now that bonds are much more appealing due to the higher yields, Harris expects that there are going to be some significant changes in asset allocation.

Finsum:A rise in yields for low-risk bonds could have major implications for institutional asset allocation next year.

LPL Financial announced that it has nabbed Strategic Partners, a Parsons, Kansas-based practice with 18 advisors and approximately $830 million in advisory, brokerage, and retirement plan assets. Strategic Partners joins from Royal Alliance, an Advisor Group subsidiary, and aligns with National Financial Alliance a San Antonio, Texas-based office of supervisory jurisdiction of LPL. Strategic Partners was founded by Owner and President Chris Lubbers in 1994 while he was still attending college. Lubbers said that he and his firm were attracted to LPL and NFA for their technology, operational efficiencies, and growth opportunities. He stated, “I’m all about efficiency and that’s where LPL shines. The firm has invested heavily in its technology platform, creating efficient processes and enhanced solutions that will help our advisors provide better services. Clients will have easier access to reporting and account information, all in one place to give them a deeper understanding of their financial picture.” He also mentioned that the move will help him and his firm recruit more advisors.

Finsum:LPL announced that it has recruited an 18-person advisor team managing a combined $830 million from Advisor Group’s Royal Alliance subsidiary.

According to the new InspereX 2023 Advisor Outlook Survey, 74% of financial advisors said they expect the inverted yield curve between the 2-year and 10-year Treasuries to continue into the second quarter of 2023. This includes 40% who expect it to last beyond the third quarter. An inverted yield curve occurs when short-term yields are higher than long-term yields. It is also often considered a signal for a recession. InspereX provides advisors, institutional investors, issuers, and risk managers deep access to fixed-income market data across asset classes. The survey was conducted between November 8th and 21st, 2022, among 270 financial advisors by Red Zone Marketing. The respondents represented advisors from independent and regional broker-dealers, banks, and RIAs. InspereX President David Rudd stated, “While many advisors are bullish on stocks in 2023 and optimistic about moderating inflation, their views on a continuation of the inverted Treasury yield curve indicate that the first half of the year could be bumpy.” However, advisors also believe that rising inflation is over, with 75% saying it has peaked. While many advisors say their clients are concerned about fixed-income volatility, they were not too scared to invest in fixed-income right now. In fact, the survey found that 68% of advisors are using individual bonds with their clients, mainly for income (56%) and diversification (23%).

Finsum:A recent survey revealed that advisors are concerned that the inverted yield will continue into next year, indicating the possibility of a recession.