Model portfolios have gained a lot of traction in the last couple of years, and that’s bearing out in the market with both launches and inflows increasing over the last 3-5 years. However, what are the main advantages of model portfolios for investors and advisors? For investors, they are a series of complete packages that address specific needs simply often times based on preferences, lifestyle decisions, and demographics. They can also address specific problems such as the macro turmoil permeating markets currently. For investors, they offer additional benefits of freeing up time for clients and their personal needs. Studies have found that clients highly value the interpersonal communication that advisors bring, regardless of the age demographic. Models give advisors the flexibility with respect to time to understand their client’s desires and help them navigate financial decisions.

Finsum: Models have huge advantages in sectors because they can match preferences simply rather than combing through individual securities.

The string of direct indexing acquisitions seems to be never-ending, but this most recent one could really aid financial advisors. First Trust Capital is acquiring Veriti Management for their direct indexing platforms, which have enormous advantages for both tax and customization preferences, such as ESG.  However, Veriti’s roots are ‘for..and…built-by-advisors’ that could distinguish it moving forward according to a senior strategist at First Trust Ryan Issakainen. The co-founder is an advisor and his background has developed further tools that could be useful to clients on their platform. Additionally, they offer nearly bespoke ESG options but at much higher minimums than the new offers coming out; Verti’s start at a quarter of a million dollars.

Finsum: This could be a nice middle option for advisors with high net worth clients, who want the flexibility of custom indexing.

There hasn’t been a more apt macro-environment since the rebound post-2008 great financial crisis, and macro hedge funds are capitalizing. Haidar Jupiter and Odey European both saw fund gains of 4.6% and 2.2% last month. Overall the industry has returned 5.3% in the first five months, which was shocking given the hedge fund industry was a net loser through that same time period. Macro has had challenges until recently where historically low-interest rates made it difficult to find any industry alpha but as rates, inflation, and other factors permeate the economy these hedge funds are finding their edge. The biggest successes have been in fixed income and commodities trading and reading the tea leaves on inflation perfectly.

Finsum: Active managers don’t always have an advantage but in this environment, they certainly seem to. 

One of advisors’ main duties is also one of their most challenging: to sift through a seemingly endless universe of funds and pick the ones that will outperform relative to their peers. Even once advisors have identified what they want to buy, they often have dozens of fund options to choose from, all seeming similar without deep research. Luckily, Nasdaq Dorsey Wright has a solution to help advisors choose the highest performing fund, and do so very efficiently. They have a proven methodology that allows advisors to systematically find consistently higher returns for their clients by using Fund Scores.

Nasdaq Dorsey Wright takes many Factors into account when creating fund scores. By using trend-based measures with price and various moving averages, market relative strength measures so as to perform other segments, and a peer metric to select the best funds in the category, Nasdaq Dorsey Wright’s approach has led to consistent outperformance. Every fund has a rating on a scale of 0-6 with 6.0 being the highest possible rating. To analyze the real-world efficacy of fund scores they looked at the historical performance at six different tiers (6.0-5.0, 5.0-4.0, etc.) to see how well they predicted future excess returns. Funds were rebalanced every month to account for changing scores, and there were consistently high returns for the higher rated categories. From 1992 to 2020 the 5.0 and higher had a CAGR of 11.76% whereas the 4-5’s had a 9.06% return. The fund scores were directly correlated with the returns, and even more impressive was how little additional risk was prevalent. Max drawdowns, standard deviations, and Sharpe ratios also all improved across the higher scores.

In summary, Nasdaq Dorsey Wright’s Fund Score is a highly proven, efficient, and easy-to-use tool to find outperformance for your clients.

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There are two extremely difficult factors in the bond market currently the Fed is stepping on the pedal as quickly as ever and inflation is taking off to 40-year highs. Both of these put upward pressure on rates which move inversely with bond prices. However, some funds may prove more resilient or even move upward when rates rise. Rate hedge bond funds give investors an option exactly described, but they do come at a cost. One example is LQDH which is an interest hedged corporate fund, which has drastically outperformed its direct compliment, the unhedged LQD. However, these funds are for the extremely risk-averse investors.

Finsum: Rates may be stalling as noted by the recent 10-year dip which is a sign that bond prices might be undervalued currently.