Last month, the Vanguard Group decided to drop out of the Net Zero Asset Managers initiative, whose members commit to making their investment portfolios emission-neutral by 2050. The decision by Vanguard emphasizes the notion that retail investors are less focused on ESG priorities than institutional investors. The fund giant said that 80% of its nearly $8 trillion in assets are in index funds, which typically attract retail investors. The rationale for the decision, according to Vanguard was that it was responding to the desire of its clients to provide "clarity" and make its independence clear. Vanguard's largest competitors, BlackRock and State Street rely more on institutional investors such as pension funds and foundations. Todd Rosenbluth, head of research at VettaFi told Reuters that “Institutional investors focus more on climate and other ESG priorities amid pressure to do so by clients, regulators and investment activists. BlackRock and State Street are appealing to an investment base that cares more about ESG." Both BlackRock and State Street have stuck with the Net Zero Asset Managers initiative. Rosenbluth also stated that “Many retail investors are also interested in matters like climate change, but prioritize them less in building retirement portfolios.” That matches a FINRA Investor Education Foundation study of retail investors last year that found only 9% of respondents held ESG investments.
Finsum:Many retail investors are interested in climate change, but prioritize them less in building portfolios, while institutional investors focus more on ESG amid pressure from clients, regulators, and activists.
Principal Asset Management recently announced that it is enhancing its fintech-enabled model portfolios by incorporating individual bonds as an option for the portfolios. The company collaborated with YieldX and Smartleaf Asset Management to offer the only full portfolio direct indexing solution, enabling advisors to expand the capabilities of direct indexing beyond equities to individual bonds. Principal launched fintech-enabled model portfolios last year in collaboration with Smartleaf to make it easy to construct and manage custom portfolios. As part of the announcement, Jill Brown, Principal's managing director of U.S. Wealth Platform, stated, “We are the first asset manager to work with YieldX to incorporate individual bonds into model portfolios, making the combinations of mutual funds, ETFs, individual equities, and now individual bonds available through our 37 model portfolios even more powerful.” Adam Green, CEO of YieldX added “Through the addition of capabilities from YieldX, advisors will now have the option to include individual fixed-income securities.”
Finsum:Principal collaborated with YieldX and Smartleaf to offer individual bonds as part of its direct indexing model portfolios.
Corporate executives are warning that the volatile market, combined with the Fed’s rate hikes and the war in Ukraine will negatively impact fourth-quarter earnings, while analysts have downgraded earnings expectations in every sector. However, there may be a bright spot during earnings season, ETF issuers. According to ETF.com data, ETF flows came in at $203 billion in the fourth quarter, nearly double the third quarter's flows of $105 billion. The increase in flows should help fourth-quarter earnings for ETF issuers. It would also be a reversal from the previous quarter when State Street reported $14 billion in net outflows and Schwab’s ETF revenue declined sharply. ETF inflows at BlackRock’s iShares also fell by more than half compared with the third quarter of last year. The surge in inflows during the fourth quarter can be attributed to the rising demand for fixed-income ETFs. Investors are flocking to bond ETFs as they are considered safe havens during downturns. BlackRock President Rob Kapito said on the company’s third-quarter earnings call, “We're going to see dramatic and large inflows into fixed income over the next year as interest rates rise.” ETF.com data shows that fixed-income funds saw inflows of $61 billion in the fourth quarter, up nearly 13% from the $54 billion in the prior-year quarter.
Finsum:While analysts are predicting a dismal fourth-quarter earnings season, ETF issuers may be a bright spot as fixed-income funds saw inflows of $61 billion during the quarter.
With studies indicating that the advisory industry’s organic growth rates are near zero, Gary Foodim, chief marketing officer for Mercer Advisors, believes it’s time to bring a renewed focus to marketing. Firms are facing a more challenging environment now. Advisors are dealing with rising inflation, higher interest rates, and market volatility that have slowed down the decision-making time of consumers. In addition, the competitive environment has also increased with an influx of low-cost financial advisors. Due to these challenges, traditional referral activities may no longer be enough. So, Foodim is recommending advisors embrace digital marketing for more leads. He noted that “A strong digital client lead generation engine requires three important things rooted in a ‘test and learn’ approach. First, firms need to refine their message and target audience – are you targeting the right people, and are you doing it with a differentiated message?” He also believes that firms should be open to testing various digital lead sources including paid search, social ads, connected TV ads, and nurturing email campaigns. Firms should also conduct audience testing through lookalike audiences, where you create groups of people who look like your current clients. This can be done through outside marketing firms or on social media platforms such as Facebook. Finally, firms should develop an internal sales team to follow up and convert these leads into clients.
Finsum:With increased competition and a challenging market environment, referrals may no longer be enough, which is why advisors should embrace digital marketing as a way to generate new leads.
In an interview with Russ Alan Prince in Financial Advisor Magazine, Jeffrey Schwaber, Chief Executive Officer of Bluerock Capital Markets, stated that he believes real estate is well-positioned to outperform in 2023. He noted that while some economic indicators are pointing towards a possible recession this year, “real estate market fundamentals remain very healthy.” He referenced the difference in real estate during the Financial Crisis and now. For instance, the three key factors that negatively impacted real estate during the financial crisis, supply, leverage, and jobs, are all now healthy. Real estate supply as a percentage of total inventory is the lowest it has been in the "trailing 10-year period compared to previous periods and is forecasted to remain at lower levels." The use of leverage since the Financial Crisis has been the lowest of any “real estate/economic recovery” in the last forty years. As for jobs, the unemployment rate was 3.7% as of November, close to the lowest level in 10 years. In terms of where to invest, Schwaber is bullish on the industrial, life science, and single-family residential sectors. The growth of online retail is driving demand for warehouse and distribution centers on the industrial side. Life science real estate offers an attractive opportunity due to significant growth in biotech research, and the significant undersupply of apartments and single-family rentals is fueling the residential housing market.
Finsum:Due to healthy fundamentals, Jeffrey Schwaber, Chief Executive Officer of Bluerock Capital Markets, believes real estate will outperform this year in the industrial, life science, and single-family residential sectors.