Displaying items by tag: financials

Friday, 19 May 2023 10:46

Direct indexing and to the point

Your table’s ready, direct indexing. The food’s hot, the beverages refreshing cold.

What else would you expect, considering that in the financial industry, direct indexing’s all that and more – as in the next big thing, according to comparebrokers.co.

Who’s it idyllic for? Those who are calling it a day in the workforce. Under those circumstances, they can unload holdings that impact taxes the least.

If you want to separate yourself from your peers, direct indexing strategies could be your answer, according to advisorperspectives.com.

They can dispense tax effective ways to manage any cash windfalls that might be on the horizon among high net worth investors. Not only that, they can shore concentrated stock positions.

In a recent interview at IMPACT, Daniel Needham, president of Morningstar Wealth Management Solutions, said his firm considered direct indexing an “important investment option for advisors to be able to deliver great advice to their clients.

“That’s the primary reason we decided to enter the market,” said Needham. “We think that direct indexing is a good way for clients to be able to have their financial capital personalized, including their values, beliefs and preferences, as well as to be tax-managed for a lot of households. Tax management should happen for every household.”

Published in Eq: Financials
Friday, 05 May 2023 12:56

Some Alternatives to Stocks and Bonds

In an article for MarketWatch, Morey Stettner discussed various options for alternative investments including non-traded real estate, private debt, venture capital and hedge funds. The asset class delivered strong returns in 2022 especially compared to stocks and bonds. 

Looking ahead to the next decade, alternative investments are expected to fare better especially as they offer diversification to investors with the potential for higher returns. The traditional 60/40 allocation does not seem sufficient for a higher-rate, higher-inflation regime, and alternatives could be one solution for advisors to help clients reach their goals. 

There are also some additional considerations about alternatives that advisors need to understand. For one, money isn’t immediately deployed especially in private equity and venture capital. Additionally, money often cannot be immediately redeemed, while there is less transparency about pricing in less liquid markets. 

Many investors see opportunities in private real estate and venture capital especially as savvy managers will be able to take advantage of the dislocations in these arenas. Many also believe the asset class would outperform in a recession or inflation scenario which would likely continue to be a major headwind for stocks and bonds. 

Finsum: Alternative investments continue to attract interest especially due to stocks and bonds coming off a poor year in 2022.

Published in Wealth Management

In an article for the Globe and Mail, Tom Czitron shared some thoughts on why investing in alternative asset classes could get more challenging over the next decade. He defines alternatives as any asset that is not an equity, bond, or a money market fund.

The most well-known examples are hedge funds, private equity, natural resources, real estate, and infrastructure. Typically, there is low correlation with stocks and bonds which increases diversification and long-term returns. 

Yet, there are some challenges as returns can widely differ. Additionally, there is less coverage and data regarding the alternative investments unlike stocks and bonds where there is Wall Street coverage, regulatory disclosures, and publicly available information. For advisors, this means that more judiciousness is required in terms of selection. 

Another complicating factor is that alternative investments are generally illiquid. While this does likely contribute to the asset class’ enhanced returns, it means that funds cannot be easily withdrawn with long lock-up periods in many cases. An additional risk is that many alternative investments deploy large amounts of leverage which mean there is a greater risk of a blow-up in the event of a rate shock or bear market. 

Finsum: Alternative investments outperformed stocks and bonds over the last decade. Yet, there are some risk factors that investors need to consider.


Published in Wealth Management

In a Forbes article, Brian Hundler discussed the growth of alternative investing in recent years and the strong momentum for this nascent asset class. He attributes technology and the globalization of markets as major factors for making these investments available to a wider category. 

Alternatives investments encompass private equity, hedge funds, real estate, commodities, and cryptocurrencies. They tend to be less liquid and riskier but also have the potential for higher returns. For investors with a higher risk profile, they can certainly be part of a diversified portfolio. 

Many cite the past decade of zero interest-rate policy as the driving force behind the growth of alternative investing as it forced many investors to get creative and enhance risk in the search for yield. Another factor is increased demand for diversification as alternative investments have low correlations with traditional assets. 

The final piece in the growth of alternative investing is that technology has made these investments accessible to smaller investors, while they were only previously available to high-net worth investors due to logistical and regulatory hurdles. 

Finsum: Alternative investments are booming. Read more to find out why, and how it can enhance returns and diversification.


Published in Wealth Management

In an article for InvestmentNews, Palav Ghosh discussed the growth in capital allocated to alternative investments by global asset managers. There was a 10% increase from 2021’s $130 billion to $144 billion in 2022 according to a report from Vidrio Financial.

Some of the largest destinations for this capital were private equity and venture capital which accounted for $61.6 billion. This was a slight drop off from $64 billion in 2021 albeit not surprising given the struggles of these two asset classes. However, inflows into credit and real estate remained the same at $27 billion.

Interestingly, there was a more than 100% increase of inflows into hedge funds which went from $8 billion in 2021 to $16.6 billion in 2022. Inflows into infrastructure and real assets also slightly increased to $7.3 billion and $4.9 billion, respectively.

Some of the top allocators to alternative investments were the New York State Common Retirement Fund, the State of Wisconsin Investment Board, and the California State Teachers Retirement System.

Overall, allocators are moving away from the typical 60/40 model and closer to a balanced mix of private and public investments.

Finsum: Allocators are increasing exposure to alternative investments. This isn’t surprising given the volatility for stocks and bonds over the past year. 

Published in Wealth Management
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