Displaying items by tag: portfolio

Taking, um, stock, of your portfolio holdings?

Hold on with both paws: with investors updating their economic outcome probabilities, volatility’s the byword for next year in the S&P 500, UBS Global Wealth Management recently said, according to markets.businessinsider.com.

"[Expect] more volatility and large market swings exacerbated by positioning as investors update their economic outcome probabilities in reaction to each new data point and Fed utterance," Jason Draho, head of Asset Allocation Americas at UBS Global Wealth Management, said in a note.

He noted that the S&P’s been marked this year by a "pendulum-like return pattern.” He added “large month-to-month swings could continue well into next year before the economy's eventual destination becomes clear."  

And if you thought the oil market’s were beyond the sticky fingers of volatility: ha!

As in think again.

After heading north on the tailwinds of a post lockdown spark in demand, crude climbed to an almost unprecedented high in the aftermath of the Ukraine invasion, according to currenciesdirect.com. Then, in light of the tumultuous global economy, drooped.

Exchange traded funds are the bomb as they play an "expanded role in portfolio construction," according to a recently released report by State Global Markets, the survey sponsor, reported pionlne.com.

Participating in the survey were 700 global institutional investors responsible for asset allocation decisions at pension funds, wealth managers, asset managers, endowments, foundations and sovereign wealth funds.

In fixed income, the outlook -- short term – is dominated by unrelenting inflation and upticks in central bank interest rates, according to ssga.com At the same time, however, investor implementation and fixed income allocations management are influenced by longer term, structural forces.   

And talk about a financial trend to swoon for. In fixed income ETFs, assets under management ballooned from $574 billion in 2017 to $1.28 trillion in 2021. Over the same time period, there was a rapid acceleration of in the number of funds -- from 278 to nearly 500.

The role of ETFs in asset allocation’s expanding to non-core sectors, the 2022 survey shows, according to the site. One example: 62% of investors who are increasing exposure to high-yield corporate credit over the next 12 months say it is likely they will use ETFs to do so, and 53% say the same for emerging-market debt.

According to a global two-phase survey from Morningstar Indexes and Sustainalytics, asset owners are not, by and large, implementing ESG factors in their portfolios. The Voice of the Asset Owner survey asked 500 global asset owners in 11 countries their thoughts on ESG. Survey findings revealed that only 29% of asset owners reported that they consider ESG factors for at least half their holdings. The reason for the low figure was attributed to concern over the impact on returns, a lack of available products, and the reluctance of both clients and stakeholders. However, the survey also showed that 85% of asset owners believe ESG factors are material to investment policy, while 70% said that ESG factors have become more material over the past five years. Asset owners that participated in the survey included OCIOs, family offices and sovereign wealth funds, pension funds, and insurance providers. Two-thirds of the respondents noted that the quality of ESG data, indexes, ratings, and tools have improved. However, about half stated that data and ratings would stand to benefit from improvements in accuracy, timeliness, and greater objectivity.

Finsum: A recent survey revealed that while many asset owners believe ESG factors are material to investment policy, only 29% consider ESG factors for at least half their holdings.

Recession, inflation, and interest rate volatility are reaching 40-year high levels of risk which has investors changing things up and ditching the 60/40 portfolio split. Whatever risks investors thought were present in their portfolio 6-months ago are drastically different today. Investors desperately need to re-allocate and re-balance that risk to a more suitable set of investments for the second half of 2022. Investors should look to more alternative investments because there is high-interest rate volatility. In fact, the US has dropped into a recession in over 75% of tightening cycles since the great depression. Generally, these tightening cycles increase the correlations between bonds and equities and hurt the cushion bonds normally bring.

Finsum: Advisors need to think outside the box to prepare for volatility in this cycle. 

Some advisors think of model portfolios as a tool for advisors that is rigid: a pre-selected allocation not to be tampered with. However, the model portfolio’s true advantage is that it brings an element of customization. This varies based on how an advisor implements the options, but overall because investors own the underlying asset, unlike a mutual fund they can add/drop for customization. This gives investors an edge for tax loss harvesting or tweaking to add a growth stock for example. To add to that models are relatively fee efficient particularly when it comes to their mutual fund counterparts while bringing most of the same options.

Finsum: A model portfolio can also be selected for its inherent traits as well and provide advisors with more flexibility than they are perceived to have.