Economy
Mortgage-backed real estate investment firm Aspen Funds recently announced that it will be offering alternative investment options for retail investors. Due to rising rates and recessionary concerns, most asset classes have seen steep drops this year. These losses have increased the demand for alternative investment options for investors. Previously, alternative investments were only available to accredited investors such as ultra-high net worth individuals and institutions, but more and more options are being offered to retail investors. While Aspen Funds hasn’t unveiled what type of alternative investment products it will be offering, the company focuses on assets such as mortgage notes, multi-family apartments, self-storage, and industrial real estate. The firm was started after the financial crash in 2008 and 2009 due to the demand for alternative options, so it would make sense in the current market environment to expand its offerings.
Finsum: Due to the current volatility in the market, there is a greater need than ever for alternative investment options for retail investors and Aspen Funds is looking to fill the void with a suite of upcoming alternative products.
On Tuesday, the ICE Bank of America MOVE index, which measures 30-day implied Treasury volatility, rose to its highest level since the market crashed at the beginning of the pandemic in March 2020. The reason for the high bond volatility is the dueling concerns of the Federal Reserve raising rates and the resulting fear that this will lead us into a recession. The Fed has committed to aggressively raising rates to contain rampant inflation. This has pushed yields higher amid a massive bond sell-off. The concern over a recession stem from the early 1980s when Fed Chairman Paul Volcker aggressively tightened monetary policy to get control of rising consumer prices. Bond volatility is likely to remain until we have a better idea of how the economy responds to the rate increases.
Finsum: With the Fed aggressively raising interest rates, concerns over a recession have led to massive volatility in the treasury markets.
While the stock market is starting to show signs of turning around volatility is still present. Adding to the complexities is the conflicting macro news that investors are getting. The most recent jobs report was strong despite signs growth is slowing, and the Fed is slamming on the breaks. For short-term investors and that nearer retirement, it might still be a bit before you jump back in. However, many on the street are telling young and long-term investors to get back in the market. Sectors like tech are turning around and acquisitions will be very fruitful for the long-run growth of the industry. Hedge funds are still running high on cash and in ultra-low exposures post-GFC, which could be a sign the end isn’t quite here yet.
Finsum: The next GDP release will be critical for the economy, if things are moderate and inflation isn’t extreme equities could rally.
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The Fed has entered a nearly 20-year unprecedented tightening cycle with the latest 75 bps hike, and that is more than beginning to shift bond markets. While existing bondholders might be upset as bonds prices and yields are inversely correlated and both tightening and inflation are inching yields up, income investors are rejoicing at the small dividends being paid out in fixed-income ETF funds. While the dividends in short-term treasury funds are by no means large it could be a sign of change. Experts are saying we could see mid-3% in these cash-adjacent products by the end of 2022. With the Fed nowhere near close to taming inflation in many people's eyes, this could just be the start of meaningful dividend payments.
Model portfolios have gained a lot of traction in the last couple of years, and that’s bearing out in the market with both launches and inflows increasing over the last 3-5 years. However, what are the main advantages of model portfolios for investors and advisors? For investors, they are a series of complete packages that address specific needs simply often times based on preferences, lifestyle decisions, and demographics. They can also address specific problems such as the macro turmoil permeating markets currently. For investors, they offer additional benefits of freeing up time for clients and their personal needs. Studies have found that clients highly value the interpersonal communication that advisors bring, regardless of the age demographic. Models give advisors the flexibility with respect to time to understand their client’s desires and help them navigate financial decisions.
Finsum: Models have huge advantages in sectors because they can match preferences simply rather than combing through individual securities.
The string of direct indexing acquisitions seems to be never-ending, but this most recent one could really aid financial advisors. First Trust Capital is acquiring Veriti Management for their direct indexing platforms, which have enormous advantages for both tax and customization preferences, such as ESG. However, Veriti’s roots are ‘for..and…built-by-advisors’ that could distinguish it moving forward according to a senior strategist at First Trust Ryan Issakainen. The co-founder is an advisor and his background has developed further tools that could be useful to clients on their platform. Additionally, they offer nearly bespoke ESG options but at much higher minimums than the new offers coming out; Verti’s start at a quarter of a million dollars.
Finsum: This could be a nice middle option for advisors with high net worth clients, who want the flexibility of custom indexing.