Model portfolios continue to grow in prominence among advisors. Every quarter, a higher percentage of advisors are adopting models and AUM has been growing considerably. Some evidence suggests a lot of the AUM growth is coming from some “power users” but the movement is still broad-based. On the back of that growth, Fidelity is expanding its suite of popular model portfolios. The company has launched Fidelity Target Allocation Tax-Aware Model Portfolios, which include nine equity and fixed income mixes, each versioned for I and Z share classes. The models are available through its managed account platform, Fidelity Managed Account Xchange (FMAX), and the Envestnet platform.

FINSUM: Models are making it easier and easier for advisors to manage money and save time, which boosts margins and enhances client service overall.

The IMF has warned investors that there are growing concerns about an emerging market debt crisis. There is anxiety that sluggish growth, higher interest rates, and surging inflation will hurt developing economies much more severely than developed ones. They will be disproportionately affected because highly indebted countries will have a dip in their investment and suffocate their currencies. These concerns aren’t new and emerged at the start of the pandemic, but this swell seems different. The Fed responded by pumping trillions into the economy in 2020 and they are doing the exact opposite now. Additionally, war and other risks are heightened now with Russia-Ukraine’s escalation.

Finsum: Investors searching for yield should be wary of emerging market bond funds given unprecedented risk levels.

There are several threats that are targeting portfolios right now in terms of volatility. The first is inflation, and investors need to make considerations like planning ahead for the near term for big financial costs. Advisors can also help investors with rising interest rates. Rising interest rates mean variable debt will become more costly so more payments are better in the short run, and locking in fixed rates could be smart before yields climb too high. Finally, concerning general volatility due to slowing growth, it really depends on demographics. For young investors, advisors should steer them through market difficulty by bringing their experience with it previously. For more seasoned investors nearer to retirement, investors should consider pivoting to safer assets in order to avoid sharp losses in market swings.

Finsum: There are intricate strategies or specific funds to help in terms of volatility that advisors should consider.

Direct Indexing is being heralded as the next big wave of investment products, as it gives investors the power to take advantage of tax-loss harvesting and customize it to their interests. However, the dual objectives that they propose could come to compete with each other and undermine investor interests. If investors maximize the tax-alpha they aren’t really aligned with their interests which younger investors are holding as a high priority. Riding a portfolio of all ‘greenwashers’ gives investors few options for tax purposes and deviates too far from the underlying index. The most effective solution might be for financial advisors to develop a better understanding of client interests rather than leaning on a magical new product.

Finsum: Some are calling direct indexing active management in disguise, but investors trying to capitalize on either customization or tax loss might still find it an attractive option.

China has another Covid-19 outbreak that could potentially shut down Beijing in the same way that the world saw a lockdown in Shanghai previously. This outbreak is sending a shockwave across all assets that are spiking volatility. The VIX hit its highest point since mid-March, and there was a mild reservation in the bond market. 10-year treasury yields spiked 14 basis points. Bonds and equities aren’t even the whole stories; everyone knows commodities are in a super cycle, but this outbreak is putting that at risk. A variety of different commodities' prices fell in response. Finally, Wall Street is starting to be concerned that a global recession is a possibility with Ukraine-Russia ongoing, Covid surging, and serious inflation risk.

Finsum: The yield curve is also starting to turn which could be really bad for equities markets.