Energy stocks underperformed in 2023 due to supply being stronger than expected, while demand was muted due to softer economic growth in Asia and Europe. For next year, Maurice FitzMaurice, Fidelity’s energy sector portfolio manager, is bullish on the sector as he sees oil prices remaining high. Additionally, he expects increased investments in international and offshore production. 

While many are focused on the recent decline in oil prices, FitzMaurice believes that fundamentals support higher prices, and he points to low levels of CAPEX over the past decade as a major factor. Even though investment in production has recently increased, it will take years for it to come online and meaningfully impact supply. He predicts that US shale production will see slower growth due to higher costs and less productive wells, and OPEC will remain vigilant to support prices. 

In terms of subsectors, he favors energy equipment and services companies. He believes that more investment is required to meet the world’s need for oil, and higher levels of CAPEX should persist for multiple years especially given nearly a decade of underinvestment. Additionally, there is limited capacity in these subsectors which should result in significant pricing power and higher margins. In terms of which companies to target, he advises seeking out companies trading at discounted valuations, a healthy balance sheet, and a disciplined approach to capital allocation that has some sort of competitive advantage. 

Finsum: Fidelity’s energy sector portfolio manager shared his outlook for the sector next year. He is most bullish on energy services and equipment stocks due to the start of a multiyear investment cycle. 

Morningstar Investment Management (MIM) shared its 2024 outlook for financial markets. It’s particularly bullish on fixed income due to attractive valuations, generous yields, and falling inflation. Within the asset class, it likes developed market bonds, emerging market debt, and inflation-linked fixed income. 

While it sees more upside for long-duration bonds, it sees value in shorter-duration bonds for more risk-averse investors especially given that geopolitical risk will likely remain elevated in 2024. However, the yield curve is inverted which is typically a leading indicator that rates, and inflation are going to trend lower. Both developments would be more favorable for longer-duration fixed income. 

It also sees bonds returning to their traditional role of dampening portfolio volatility by providing a hedge against equities and meaningful income to investors. Due to the rise in yields, investors no longer have to take on risks in search of income as they often did during the previous decade. 

In regard to corporate bonds, it sees downside risk in the event of a recession as they are ‘priced for a slowdown, not a recession’. MIM is also concerned that high rates could erode company fundamentals especially in an environment of declining revenue and earnings. Thus, it recommends keeping a close eye on credit spreads and high yield bonds

Finsum: Morningstar Investment Management shared its 2024 outlook. It’s bullish on fixed income, specifically long-duration government bonds but more cautious on corporate debt given the risk of an economic slowdown turning into a recession.

According to a study from Cerulli Associates, independent and hybrid RIAs are seeing the most growth in advisor headcount compared to other channels. This same trend is evident across larger time frames as well and an indication that independence is an enticement for advisors. 

Over the last decade, the number of independent RIAs has grown by a 2.4% annual rate, while the number of advisors working at independent RIAs has increased by an annual rate of 5.2%. Over the next 5 years, total advisor headcount is projected to remain flat, but independent and hybrid RIAs are forecast to see more gains in advisor headcount. And independent and hybrid firms are projected to control 31% of intermediary market share by 2027.

Some of the reasons that independent and hybrid RIAs may appeal to advisors are more flexibility and higher payout percentages. In contrast, the more established firms offer the leverage of corporate scale in addition to access to technology, training, and resources. 

A survey by Fidelity of advisors in October had similar findings. Over the past 5 years, 1 out of 6 advisors had switched firms. Independent RIAs were the top destination. 94% of advisors who switched firms were happy with the decision, and 80% reported growth in assets under management. 

Finsum: Independent and hybrid RIAs are seeing continued growth in terms of advisor headcount at a time when total growth in headcount for the industry is flat. 

As the calendar turns to a new year, it’s an opportune time to check in how experts are thinking about various asset classes. According to Jason Bloom, Invesco’s head of fixed income and alternatives, the market has been overly defensive for the last 2 years. However, this attitude is now changing as the consensus increasingly believes that a soft landing is likely. 

Flows into fixed income have fluctuated with investor sentiment rather than in search of optimal returns. As a result, many investors may be missing out on opportunities and underexposed in the event of a rising market, he warned. 

Bloom added that, “The market has really been in this state of sort of almost living in a world that is very different from the truth and reality of the underlying economy. For almost two years now, we’ve been three months away from a recession. The market has been perfectly wrong in predicting a Fed rate cut six months from now for the last two years. That trend has been incredible.”

Bloom wants to continue positioning against the consensus by betting on the economy remaining healthier than expected, and the Fed cutting less than expected. He believes inflation will continue to moderate although the 2% target is more of a floor rather than a ceiling. Given this outlook, he favors high-yield and leveraged loans given that default rates are likely to stay low if the economy remains robust.   

Finsum: Invesco’s Jason Bloom is optimistic about fixed income in 2024. He recommends continuing to bet against the consensus trade by expecting a healthy economy in 2024 and fewer rate cuts than expected.

There was a major turnaround for US REITs in November as the industry raised $5.1 billion of capital compared to $1.3 billion in October. It was also an 89% increase from last November’s figure of $2.7 billion. YTD, the sector has raised $53.4 billion in capital, an 18% increase from last year’s first 11 months. 

Nearly all of the capital raising came from debt issuance with the remainder from common and preferred equity offerings. The biggest contributors were hotel landlord Service Properties Trust and mall owner and operator Simon Property Group who raised $1 billion each. Realty Income Group raised $951 million through two separate debt offerings.

YTD, the biggest debt issuance has been Uniti Group’s $2.6 billion at the start of the year. And the biggest capital raiser has been American Tower at $7.1 billion followed by Prologis at $5.4 billion. 

In terms of subsectors, specialty REITs, which encompass advertising, casino, communications, datacenter, energy infrastructure, farmland, and timber, had the most capital raised at $17.4 billion. Next was retail REITs at $9.4 billion, followed by industrial REITs at $7.9 billion. 

Finsum: November was a successful month for REITs in terms of capital raising, significantly better than last month and last year. Nearly all of it was through debt issuance.

Nick Zamparelli, senior VP and CIO of Sequoia Financial Group, shared some insights from one of Sequoia’s model portfolio. In terms of allocations, 25% is liquid fixed income, 38% is liquid public equities, and 36% is alternatives which includes private credit, private equity, hedge funds, and real assets. He credits Sequoia’s success to mixing in illiquid investments to boost risk-adjusted returns. 

In terms of his outlook, the biggest challenge is on the fixed income side and when to move from short-duration assets to longer-duration ones. Many have been stung by being too early in expecting the Fed’s hiking cycle to force the economy into a recession. Instead, the economy proved to be more resilient than expected and yields kept trending higher for most of the year until recently.

Regardless, he sees opportunities in fixed income given that yields are sufficiently elevated to offer diversification and attractive returns. Additionally, he sees the asset class returning to its traditional role as offering diversification against equities. 

In terms of equities, Zamparelli sees upside for small cap stocks given that they have recently underperformed but history shows outperformance over longer periods of time. Another area of interest is international and emerging market equities which have underperformed for the last 16 years. He believes these stocks will benefit if the dollar weakens.

Finsum: Nick Zamparelli, the senior VP and CIO of Sequoia Financial Group, shared some insights from managing a 50/50 model portfolio including thoughts on fixed income and equities.

We are nearing the end of one of the most aggressive periods of monetary tightening in history. Since March 2022, the Federal Reserve has hiked 11 times, sending the benchmark rate above 5%. At the latest FOMC meeting, Chair Powell left room open for more hikes if necessary, but the overall message was that inflation was moving closer to desired levels, while the economy remained resilient. 

Most market participants are now focused on the Fed pivoting and cutting rates sometime in 2024. Therefore, it wouldn’t be prudent to hold off on investing in an annuity or other sort of fixed interest investments in the hopes of securing higher rates. In fact, we are starting to see cuts on some annuities for the first time in years, following the recent decline in longer-term yields

For most of the year, ‘higher for longer’ has been the prevailing narrative. Yet, there are many indications that we are in the final innings of the hiking cycle such as a cooling labor market and moderation in inflation. Additionally, public comments from Fed officials have indicated the need to cut rates if inflation does moderate to keep real rates from climbing even further. 

Currently, annuities are at their highest payout rates in decades. Given the likelihood that we are in the midst of a Fed pivot, prospective buyers of annuities should take advantage of these attractive rates before they start to drop. 

Finsum: Fixed annuities are quite attractive given the current level of rates. Yet, there are some signs that interest rates are going to turn lower which means that this is an opportune time to invest in an annuity.  

Success for a financial advisor is dependent on attracting and retaining clients. The key is to create an incredible client service model to deliver an experience for clients that surpasses their expectations. 

The client service model is your holistic plan for how you will engage with clients. It starts with the onboarding process and has to make clients feel comfortable and trust in your expertise. At all steps, advisors should constantly deliver value while fostering engagement. The latter is key to retention and can also lead to referrals down the line. 

The first step is to imagine the experience through your clients’ perspective. For this, you must specify your target market and define the ideal client. Think carefully about your clients’ pain points, and what would prevent them from working with you. 

Next, you need to consider the client journey. As they move through different stages of their life, their needs and goals will evolve. This will shape the advice and services you offer. Some common steps are onboarding, initial planning, regular reviews, and a consistent communication strategy. 

Finally, it’s important to remain consistent in all your appearances and interactions with clients. Ultimately, the purpose of a client service model is to ensure the delivery of a meaningful experience to clients at all steps and through all channels.

Finsum: Building an effective client service model is an invaluable asset when it comes to attracting and retaining clients. Here’s some tips on getting started.

Financial advisors and investors seem to be speaking different languages when it comes to annuities. A recent survey paints a curious picture: while only 19% of financial professionals perceive client interest in guaranteed lifetime income products, nearly half of the surveyed investors nearing or in retirement express the same desire. This disconnect presents an opportunity for advisors to revisit the conversation and unlock significant value for their clients.

For investors approaching their golden years, the fear of market volatility and portfolio depletion is real. They seek peace of mind, knowing a portion of their income is secure, regardless of economic turbulence. Despite their complexities, annuities offer this very protection, guaranteeing regular payouts throughout retirement.

The conversation around annuities requires reframing. It's not about sacrificing growth for a fixed income stream, but about building a holistic retirement plan that balances potential future returns with guaranteed income that alleviates anxiety and fosters financial security. Advisors who bridge this gap and proactively discuss lifetime income options with their clients stand to forge deeper trust and build stronger, more enduring relationships.

Finsum: Financial professionals may underestimate their client’s interest in guaranteed lifetime income options.

Passive ETFs have lower expense ratios because they don't require a team of portfolio managers to constantly analyze and adjust the mix of underlying investments. Over time, this lower cost can add a meaningful amount to the value of an investor's holdings.

While advisors and investors appreciate lower expense ratios, ETF's benefits extend beyond a simple fee advantage. A closer look reveals another hidden strength: real-time trading.

Unlike traditional mutual funds, which price investments only at day's end, ETFs operate like stocks, providing continuous price transparency and allowing for immediate execution. Gone are the days of uncertainty surrounding redemption values; with ETFs, you see the precise price you'll pay and receive, empowering informed decisions throughout the trading day.

Yet another impactful advantage lies in their liquidity. Popular ETFs often boast trading volumes exceeding even blue-chip stocks. This translates to tight bid-ask spreads, minimizing the price difference between buying and selling, and enabling efficient trade execution.

The combination of low-cost, real-time pricing, and ample liquidity make ETFs powerful tools for financial advisors seeking precision and flexibility within their client's portfolios.

Finsum: Low cost is not the only reason financial advisors should consider ETFs in their client’s portfolios. Consider these other advantages as well.