In an article for ETFTrends’ Direct Indexing Channel, James Comtois discusses how direct indexing essentially means that advisors and investors become portfolio managers, since they own the stocks directly and can customize their holdings based on their goals, preferences, and individual circumstances.

Contrast this to passive ETFs which continue to be the dominant investment vehicle for investors and advisors in which stocks are indirectly owned with no possibility of customization. Some drawbacks to indirect ownership are no shareholder rights in terms of voting on Board members or other issues. Additionally, there is no possibility of harvesting tax losses during periods of volatility to offset capital gains in other holdings. 

Many younger investors are passionate about their investments reflecting their values. This is simply not possible through passive ETFs. For instance an investor may not want to own companies in the defense industry, direct indexing allows them to exclude these companies and replace them with stocks that have similar factor scores to ensure integrity with the underlying index.

Given these benefits, it’s understandable why the category has seen major growth in the last couple of years. And, this growth will continue especially as direct indexing is no longer only available to high net worth investors. It’s increasingly being offered to those with smaller sums to invest through firms like Vanguard and Schwab. 

Finsum: Direct indexing is rapidly growing due to the benefits it offers investors which include increased customization and tax loss harvesting. 

In an article for MarketWatch, Isabel Wang details comments from Blackrock’s Gargi Chadhuri who is the Head of Investment Strategy for iShares. The major uncertainty for fixed income investors is whether the Fed’s current pause is temporary or the end of the hiking cycle.

According to Chaudhari, the market is too optimistic that the Fed is finished in terms of further hikes given that inflation has proven to be more resilient than expected. Therefore, Blackrock is recommending medium-term duration fixed income to take advantage of elevated yields with reduced volatility.

At the latest FOMC meeting, Chair Jerome Powell surprised market participants with a more hawkish tone than expected, implying that the job isn’t done yet in terms of tightening policy. Further hikes are bearish for the long-end, while the budding signs that the economy could stumble into a recession are bearish for the short-end. 

As a result, the strategist recommends medium-duration fixed income such as the iShares 3-7 Year Treasury Bond ETF or the iShares Core US Aggregate Bond ETF. Overall, he sees more opportunity in fixed income given higher rates and an uncertain outlook especially following a decade of a lack of opportunity in the space during the period of zero percent rates. 

Finsum: iShares head of Investment Strategy, Gargi Chadhuri believes that medium-duration fixed income offers the best combination of risk and reward for investors.

Pacific Investment Management Company (PIMCO) is launching two new active fixed income ETFs. The firm is already a leader in the active fixed income space, and it continues to offer new products to meet growing demand for the category. Compared to active equity funds, active fixed income has a better track record of outperformance vs passive. Active fixed income funds are also able to take opportunities in different parts of the capital structure that are unavailable to passive fixed income funds.

Its two new offerings are the PIMCO Multisector Bond Active ETF (PYLD) and the PIMCO Ultra Short Government Active ETF (BILZ). PYLD will invest in investment-grade and high-yield fixed income securities globally with a focus on long-term appreciation, diversification, and maximizing yield. PIMCO CIO Daniel Ivascyn sees major opportunities given the turbulence and volatility over the past couple of years.

Its second launch is the PIMCO Ultra Short Government Active ETF (BILZ) which will invest in short-term US Treasuries and mortgage-backed securities with the goals of maximizing yield and capital preservation. It’s designed to be an alternative to cash and a way for investors to take advantage of lofty short-term rates. 

Finsum: PIMCO is launching 2 new active fixed income ETFs. One is a global, multistrategy fund looking at long-term opportunities following recent dislocations. The other invests in short-term government debt and is designed to serve as a cash alternative.