Displaying items by tag: ETFs

Direct indexing has been around for 30 years but was once only accessible and viable for ultra-high net-worth investors. Now, technology and lower transaction costs have made it available for a much wider swath of investors who are able to benefit from direct indexing’s tax-loss harvesting and customization abilities.

Interestingly, the strategy is finding particular favor among millennial investors who are interested in tax optimization and personalization which are not possible through traditional passive investing. Advisors can customize holdings in a way that reflects a client’s values and preferences such as prioritizing ESG criteria or adjusting a portfolio based on a client’s risk profile. Holdings can also be customized to account for a clients’ unique financial situation, which is also not possible through investing in ETFs or mutual funds. 

For advisors, it presents an opportunity to differentiate themselves in a competitive landscape by offering personalized and optimized solutions. Direct indexing is likely to continue growing as it’s becoming increasingly available through many online brokerages and wealth management firms. It’s also consistent with many younger investors’ desired preference to have their personal holdings reflect their values and beliefs. 

Finsum: Direct indexing is growing at a rapid pace, and it’s finding favor with Millennial investors due to its tax optimization and personalization.  

Northwestern Mutual is expanding its offering of professionally managed investment portfolios. The firm is launching a new category of model portfolios that are accessible to younger and less affluent investors.

The initiative is called the ‘Signature Portfolios Market Pathway’ and requires a minimum investment amount of $5,000. The intention is to create a ‘straightforward approach to investing’ through low cost, diversified and broad ETFs that provide exposure across Northwestern Mutual Wealth Management’s strategic asset classes. There are five types of model portfolios that are available that vary based on risk tolerance. Obviously, the larger goal for the firm is to provide opportunities for advisors to connect with a younger generation of investors who are ready to begin their financial planning journeys.

Northwestern Mutual is positioning itself to appeal to a younger generation and for the major transfer of wealth that is set to take place over the next couple of generations. The company’s average age for an advisor is 39, while it’s 57 through the industry. Currently, it’s the 5th largest independent broker-dealer in terms of revenue, has more than 6,700 advisors, and counts more than $250 billion in assets. 

Finsum: Northwestern Mutual is launching a new initiative which lowers the investment threshold to $5,000 to access the company’s model portfolios.

Macquaire Asset Management, an Australian financial services company with $575 billion in assets and major presence as an operator in the background of the ETF market, launched its first US-listed ETFs this week. Macquaire has previously been involved with ETFs as a custodian, market marker, and advisory firm as well as providing seed capital for other funds. 

Now, it’s making a more aggressive move into ETFs in 2023. Earlier this year, it partnered with BondBloxx to serves as a subadvisor to the BondBloxx USD High Yield Bond Sector Rotation ETF (HYSA), which launched in September.  

This week, it launched 3 ETFs. The Macquaire Global Listed Infrastructure ETF (BILD) and the Macquarie Energy Transition ETF (PWER) are equity funds offering thematic exposure. It also launched a fixed income ETF - the Macquarie Tax-Free USA Short Term ETF (STAX). STAX invests in tax-exempt US bonds with maturities 1 and 5 years. 

This continues a major theme of 2023 which has been the proliferation of active ETFs. Macquaire has also indicated that it plans to launch more active ETFs in the coming years in the US and globally.

Finsum: Macquaire Asset Management is listing its first ETFs. The firm has previously been a player in the ETF space in background roles as a custodian, market marker, advisory, and seeder of funds.

For cautious-minded investors, active fixed income could be a much better option than cash. This is according to SPDR Exchange Traded Funds’ Managing Director and Head of Research, Matthew Bartolini, who notes that some of the major advantages of active fixed income are that it offers more flexibility, consistent performance, and can be more tax efficient. Overall, it can help portfolios generate income, dampen volatility, while still retaining exposure to upside opportunities. 

Many advisors and investors are already aware of these benefits as active fixed income has taken a large portion of flows relative to its size compared to passive fixed income and equity ETFs. As Bartolini notes, “Active fixed income has been really a consistent engine of support within the active [ETF] construct — not only from flows but also returns.” Another factor in active fixed income’s growth is that it allows investors to take advantage of elevated yields. 

Bartolini also believes that future returns will be appetizing for the asset class, although there will be some volatility to stomach. He also believes that cash is less desirable due to the reinvestment risk. His major focus is on constructing portfolios to generate income while properly balancing risk. 

Finsum: Active fixed income is seeing major growth in terms of inflows. Here’s why the asset class is well-positioned for the current moment given the combination of elevated yields and an uncertain macro environment.

ETF investors are extremely price sensitive. This is indicated by data showing the dominance of equity and fixed income ETFs with total expense ratios below 30 basis points in terms of inflows. ETFs below this threshold captured 97.8% of equity inflows and 99% of fixed income ETF inflows. 

When looking at the total market, equity ETFs below 30 basis points account for 76.9% of assets, and fixed income ETFs below this level account for 85.5% of the market. Over the last decade, costs have drifted lower. Equity ETF average fee declined from 0.39% to 0.23%, and fixed income ETF cost dropped from 0.25% to 0.20%. 

A recent example of this trend is State Street Global Advisors reducing its fee on the popular SPDR S&P 500 ETF (SPY) from 0.09% to 0.03%.  This move also led to a surge of inflows. 

According to Athanasios Psarofagis, ETF analyst at Bloomberg Intelligence, lower costs are a result of a more mature market. He also sees this trend continuing as he notes that “Over the long-term it is hard for active mutual funds to outperform the benchmark consistently. As ETFs grow, it will continue to put pressure on active managers to reduce their fees.

Finsum: ETFs with cost basis under 30 basis points are dominating in terms of inflows and represent the majority of total assets in ETFs. Here’s why this trend should continue.