FINSUM

FINSUM

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Thursday, 26 August 2021 20:48

The Big Gap in ESG Funds

(New York)

ESG has grown exponentially over the last couple of years as trillions of dollars have flowed into the sector. However, as the sector has grown, some gaps in its coverage have emerged. One big glaring hole is in income-focused ESG funds. Traditionally, it has always been thought that an investor who cares about income, just wants income and doesn’t care much where it comes from. This helps explain how out of 439 ESG funds aggregated by Morningstar, only 8 had an income focus.


FINSUM: The lack of ESG income funds makes sense as income-focused products often cater to retirees—the current age of whom generally makes them less interested in ESG. But opportunity awaits.

Wednesday, 25 August 2021 19:37

UBS Sends a Stark Warning to Equity Investors

(New York)

UBS just put out a very interesting warning to a large segment of the equity market. As part of their overall market outlook update, UBS explained their view on earnings and the direction of the S&P 500. There are two very notable points they made. Firstly, and most importantly, they reminded investors to stop fretting over valuations. In their words “While valuations are higher than average, we remind investors that valuations have no correlation with market returns over time horizons less than three years … And valuations typically don't contract meaningfully unless investors are concerned about a sharp growth slowdown or a policy error by central banks. And secondly, they think the S&P 500 will rise 11.5% by the end of 2022.


FINSUM: This is a brilliant reminder—equity valuations mean very little and are more a reflection of macro outlook than a concern in their own right.

(New York)

Morningstar has added a lot of coverage to their model portfolio universe this year. Earlier in 2021 they expanded their coverage of ratings to 1500 model portfolios, an increase of 50%. Of all those funds reported on, only two of them took home their coveted gold rating: the Vanguard CORE series and the BlackRock Target Allocation ETF. Vanguard was noted as having highly diversified index funds and rarely making portfolio changes. Other funds that got acclaim, such as their silver rating, include American Funds Growth & Income and the American Funds Tax Aware Growth & Income series.


FINSUM: The world of model portfolios has grown nearly as dizzying as that of ETFs so these Morningstar guides are a big help.

Wednesday, 25 August 2021 19:34

Here are Morningstar’s Top Model Portfolios

(New York)

Morningstar has added a lot of coverage to their model portfolio universe this year. Earlier in 2021 they expanded their coverage of ratings to 1500 model portfolios, an increase of 50%. Of all those funds reported on, only two of them took home their coveted gold rating: the Vanguard CORE series and the BlackRock Target Allocation ETF. Vanguard was noted as having highly diversified index funds and rarely making portfolio changes. Other funds that got acclaim, such as their silver rating, include American Funds Growth & Income and the American Funds Tax Aware Growth & Income series.


FINSUM: The world of model portfolios has grown nearly as dizzying as that of ETFs so these Morningstar guides are a big help.

(New York)

The new version of the fiduciary rule which is in the works will have a major effect on many financial advisors, but most think of this from a regulatory and customer interaction perspective. However, the rule will likely have an effect on some products too. One that seems likely to surge is usage are model portfolios. Model portfolios grew in prominence as the Obama era rule ascended. They tend to benefit clients and firms alike since they save time and money for advisors and give a great deal of outsourced investing expertise to clients. Also, because of their fee structure, they tend to create predictable revenue streams without any way to accuse an advisor of preferring specific funds which could be construed as not being in their clients’ best interests.


FINSUM: This makes total sense. Model portfolios were in part driven by the first version of the DOL rule, so a resurgence of the spirit of that rule will likely make firms and advisors push even further into this product.

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