Direct indexing is a new approach to investing which involves recreating an index within an investors’ portfolio which combines the benefits of passive investing in addition to tax loss harvesting capabilities with the potential for increased customization. For these reasons, it’s been growing in popularity especially as it’s become available to a wider swathe of investors.

However, according to a recent report from Hearts & Wallets, a wealth management research firm, most investors remain unfamiliar with the concept. In fact, there is considerable confusion about what it specifically means. Many weren’t able to specifically delineate between ETFs and direct indexing.

Another challenge is that many investors believed that direct indexing was closer in approximation to active investing rather than passive investing and that it would require some sophisticated management. For those who were interested in direct indexing, the potential tax savings were the biggest factor. 

One of the conclusions of the report was that the industry should consider renaming ‘direct indexing’ to something that was more definitive. Too many investors who would be good candidates for these products are dismissive due to an incorrect understanding of its function and benefits. 

Finsum: Direct indexing is growing in popularity. Yet, a recent report on the category revealed some issues that may impede its future growth. 

Financial advisors pour so much time and energy into building their businesses and cultivating high-quality relationships with clients. Yet, they often don’t put in a fraction of the thought when it comes to succession planning even though the implications are massive in terms of maximizing the firm’s value or ensuring that employees remain satisfied and business continues successfully operating. 

For ThinkAdvisor, Buckingham Strategic Wealth’s MIchael Kitces shares some advice on successful succession planning. He recommends starting with honest and frequent dialogue between owners and younger advisors who may have expectations about their role in the firm’s future. Older advisors can also choose to transition at their own pace and may give up certain responsibilities while continuing to do the parts of the job they enjoy. 

Part of this communication strategy is to be open about uncertainty rather than repeatedly changing plans which can lead to frustration. Another common mistake is to think about every decision as being binary rather than thinking about compromises between valid, competing interests. Finally, remember that succession planning is ultimately about maximizing the value of the firm in the present and setting it up for success in the future. 

Finsum: Succession planning is the final major decision that advisors will make in their careers. Here are some ways to maximize your chances of success. 

REITs have languished in 2023 despite a buoyant equity market due to concerns of cascading defaults in certain segments like commercial real estate (CRE), while high rates continue to pose a significant threat to the group. However, the group is beginning to look attractive from a valuation perspective while offering generous dividend income to holders as well.

From a contrarian perspective, there are some silver linings. For one, yields on long-term Treasuries are hitting levels at which they have found resistance before. The biggest, recent headwinds for REITs has been the increase in long-term rates. If this were to reverse, it would be a major catalyst for the group by lowering their financing costs and making their dividends more attractive. 

Additionally despite the challenging operating environment, financials continue to be sound, outside of CRE, and dividends continue to be hiked. According to research, REIT stock prices tend to follow their dividend streams over long periods of time. So far, there is no evidence that dividend payouts will be compromised which increases conviction in buying the dip.

To reduce risk, investors should focus on areas where rents continue to increase such as healthcare and industrials in contrast to areas where rents are slowing or stagnating such as multifamily real estate and office properties. 

Finsum: REITs have been one of the worst performers over the last 2 years. Here is a contrarian perspective on why the sector could outperform in 2024.

Exxon Mobil recently shared its long-term outlook on how it sees the global energy market evolving. Overall, it sees renewables taking a greater share but that more than half of the world’s energy needs will continue to be met by oil & gas.

It sees energy demand as being intrinsically tied with economic development. By 2050, more than 1.5 billion people will have entered the global middle class which comes with increased consumption of automobiles, air conditioners, refrigerators, etc. 

China’s per-capita energy consumption more than pentupled as the country experienced an economic boom. The company sees a similar possibility in Africa over the next couple of decades. In total, it sees global electricity consumption growing by 80% by 2050.

In order to facilitate this, it believes that all types of energy need to play a role including oil & gas. Despite the belief of many that EVs portend a peak in oil demand, ExxonMobil points out that even if every car sold in 2035 is an EV, global oil demand would only drop to 85 million barrels per day which is equivalent to 2010 levels.  

Finsum: ExxonMobil shared its outlook for the global energy market till 2050. Overall, the company believes that energy demand will continue rising and that oil & gas will remain integral for the global economy.

For Bloomberg, Ye Xie covers the aftermath of a disastrous Treasury auction for buyers. A little less than 3 and a half years ago, the world and fixed income markets were in a much different place due to the pandemic and the Fed’s aggressive efforts to flood the market with liquidity. At the time, the 30-year Treasury was auctioned off at a yield of 1.2%, while it now fetches nearly 4.5%.

Thus, buyers of the 30Y have taken a huge loss. In recent weeks, it’s traded around fifty cents on the dollar. Typically, this would mean that holders are concerned about default risk, but this is not the case. Instead, the price is so low because buyers have to be sufficiently compensated given that they can get higher levels of income in so many places. 

Simply put, it’s an indication that these buyers essentially top-ticked the Treasury market. Longer-term Treasuries declined by nearly 30% in 2022 and have added to these losses this year as the Fed has remained hawkish for longer than expected. The holders of this specific note include the Fed, ETFs, pensions, and insurance companies. 

Finsum: The yield on the 30 year Treasury fell as low as 0.7% during the depths of the pandemic. Now, they are close to 4.5%.