FINSUM
The power of – expansion.
That’s what Dimensional Fund Advisors is doing, expanding its exchange traded fund offerings with seven new ETFs, according to thinkadvisor.com.
They come onboard with the US Core Equity 1 ETF and upcoming launches of three global fixed income ETFs and a U.S. Large Cap Vector ETF, which were launched not long ago.
“We continue to evolve our investment offering to meet demand from financial professionals and add value,” Co-CEO and Chief Investment Officer Gerard O’Reilly said in a release. “These ETFs are another set of tools in Dimensional’s growing lineup, which we expect will meet diverse investor needs across asset classes and geographies.”
To build your own ETF portfolio – or discover a one ticket option – you might consider the MoneySense ETF finder tool, according to moneysense.ca.
For jacking up growth, investors can build a core portfolio and delve into other investing options. You can, say, pluck an investment in ETFs with themes. They might range from electric vehicles to artificial intelligence.
It can seem daunting, of course, to develop a brand from scratch, according to lpl.com. Whether it’s choosing a name to developing a personal logo, the reverberations of doing so endures. And that can be pretty intimidating.
When it comes to your financial practice -- your powers of creativity aside – methodical’s the name of the game. A few simple starter steps:
- Define your value proposition
- Pick your DBA name
- Develop a logo
- Develop a Website
- Execute with Consistency
Then there’s the power of persuasion.
Want others to pick up on your professional and personal success? Well, you need to convince them to see your value, according to hbr.org.
These days, everyone – every where’s – a brand, and it’s paramount for your to develop yours and market it like doing so comes natural.
Personal branding’s intentional. It’s also a strategic practice where you define and spell out your personal value proposition. Now, there’s nothing new able carefully cultivating your public persona and reputation, the potential audience has significantly been expanded by online research and social media.
Model portfolios have been growing at a consistent rate for decades due to increasing adoption by younger advisors and more awareness among investors. Now, they have reached a size at which they are starting to affect markets especially when dealing with more illiquid securities. Currently, they collectively manage $3 trillion in assets under management (AUM).
It’s natural to consider the risks and opportunities as these ripple effects will only grow with model portfolios forecast to exceed $10 trillion in AUM over the next decade. In fact, recent unusual flows into various ETFs are often due to changes in the holdings of model portfolios.
Most model portfolios are constructed with ETFs. They are managed by investment teams of asset managers and can enable advisors to spend less time on portfolio management or security selection and more time on building their business and managing client relations.
Since 2018, more than 400 model portfolio offerings have been launched. Most research shows that model portfolios tend to outperform advisor-managed portfolios. Ultimately, it’s an acknowledgement that beating the market is nearly impossible and that an advisors’ job is increasingly about financial planning rather than investing.
Finsum: Model portfolio AUM is already in excess of $3 trillion. Here’s why the category is forecast to exceed $10 trillion over the next decade.
Fixed income posted its worst quarterly performance in over a year as the market has been reducing odds of rate cuts, while increasing odds of additional hikes and extending its estimate of the duration of tight policy. This also led to the first quarterly decline in equities this year.
Yields on long-duration Treasuries are now at their highest level since 2007. Fed hawkishness is even neutering positive reactions to benign economic data as evidenced by the recent low PCE print. Fixed income was initially bid up, however this strength was sold into as most bonds finished the day unchanged. Some additional reasons may be the recent rise in oil which could handcuff the Fed from pivoting, huge supply of Treasuries hitting the market over the next couple of quarters, and uncertainty over the government shutdown.
In terms of fixed income performance, short-duration assets are outperforming, while long-duration assets are hitting new lows. Many strategists are now saying that yields will rise further with the 10Y going past 5%.
The contrarian case is that the Fed is close to the end of its tightening cycle and that the economy is finally starting to show signs of contraction. Thus, investors should buy on the dip to take advantage of these elevated yields.
Finsum: Fixed income and equities both performed poorly in Q3. For fixed income, here are some of the factors behind the weakness.
Many contrarian investors are certainly interested in buying the dip in REITs given the low valuations, generous yields, and upside in the event of a Fed pivot. Further, many components of the real estate market remain healthy such as healthcare and industrials. However, there are some risks that investors need to consider.
There are secular problems in areas like retail and office buildings due to oversupply, while there have also been significant changes in people’s behavior, affecting demand. Additionally, investors should be aware that every bear market results in a handful of value and yield traps which become plagued by balance sheet and liquidity issues especially in high-rate environments.
Value traps are situations in which stocks look attractive by conventional metrics, however these low valuations are a reflection that the market isn’t optimistic about the company’s prospects. Similarly, ‘yield traps’ are when yields look attractive, but the market is expecting a dividend cut as current payout ratios are not sustainable.
For investors interested in REITs, they must prioritize quality and strong financials. This is especially true in the current situation where the path and trajectory of monetary policy remains highly uncertain. If rates do stay elevated for a long period of time, some REITs will go bankrupt, while many will have to pay their dividends in order to remain solvent.
Finsum: REITs are attracting interest from contrarian investors, but here are some downside risks to consider.
Ever since the Fed embarked on its tightening campaign starting in the early months of 2022, the real estate market experienced the most immediate impact due to rising mortgage rates negatively affecting home affordability.
Initially, publicly traded real estate stocks saw deep drawdowns while private real estate performed much better. Now, this gap is beginning to shrink as private real estate has been following public real estate lower. One factor is that it’s increasingly becoming clear that high rates are not going to disappear anytime soon due to the resilience of the economy and inflation. In fact, inflationary pressures seem to be reigniting given the recent strength in oil and auto workers striking.
In terms of when private real estate will bottom, some indicators to watch are an increase in transaction volume even at lower prices, a change in monetary policy, and increase in lending standards. Currently, all 3 are working against private real estate given that many markets are ‘frozen’ as sellers are unwilling to cut prices, while buyers don’t see many attractive deals at current yields. The Fed’s focus remains on stamping out inflation whether through further hikes or keeping rates ‘higher for longer’. Finally, lending standards are unlikely to loosen especially with so many banks struggling with balance sheet issues and/or an inverted yield curve.
Finsum: Private real estate was immune to the weakness in public real estate for so long. Find out why this is starting to change.
Ben Hammer, the Head of Client Development for Vanguard, recently spoke to an audience of financial advisors about direct indexing. The asset manager clearly sees it as a major growth avenue especially as most advisors and investors remain unfamiliar with the concept and its benefits.
According to surveys of investors and advisors, the most appealing part of direct indexing is the potential tax savings which is not possible with traditional passive investing. By recreating indexes within an individual investors’ account, losing positions can be sold while stocks with similar factor scores are added in substitution to maintain consistency with the benchmark. Another benefit is customization as investors can adjust a portfolio’s holding based on their own situation, values, or preferences.
Hammer also stressed that direct indexing wouldn’t be available to a wide swathe of the investing universe because of its cost and complexity. However, these issues have been solved by technology as trading costs have plummeted, while software handles the regular scans for tax loss harvesting opportunities and rebalancing.
Still, direct indexing is probably not necessary for most investors. It can be the perfect solution for those who want more tax savings and customization while retaining the benefits of passive investing.
Finsum: At a recent conference for financial advisors, Vanguard’s Ben Hammer spoke about the evolution of direct indexing and its growth prospects.
For advisors, there are many benefits to working with high net worth clients. They have more investable assets and also tend to have a better grasp of what constitutes a fruitful advisor-client dynamic. Of course, there is intense competition to land these clients. Here are some tips to increase your chances of success.
The first step is to understand their needs and goals. It’s also important to be aware that these prospects have seen many sales pitches and tend to be quite savvy. Therefore, any approach should be transparent in terms of purpose and intentions. Instead of being vague, it’s more helpful to focus on a specific topic like retirement planning, charitable giving, tax strategies, succession planning, etc, where you can demonstrate your expertise.
The second step is to remember what makes you and your practice unique and to focus on these differentiators. Having a specialization can help you stand out especially if the client is looking for that particular service. This can also help you come up with a message around your brand which communicates your value.
The final step is to spend time and energy into making sure that your prospects are aware of your practice whether this is digital or analog. This means defining your ideal prospect and figuring out where they spend time and attention, physically and virtually..
Finsum: Getting a high net worth client has many benefits for advisors, but the landscape is quite competitive. Here are some tips to increase your chances of success.
A little more than 3 years ago, the SEC strengthened fiduciary rules with the passage of Reg BI, and this was also adopted by FINRA. According to a recent report from state regulators, brokerages are still struggling to comply with these new regulations.
In essence, Reg BI ensures that any recommendations made by a broker have to be offered impartially along with an explanation of any alternatives. The purpose of these rules is to ensure that there is no conflict between a broker and the client without necessarily imposing the full fiduciary obligation of RIAs.
The North American Securities Administrators Association (NASAA) reviewed broker compliance efforts and found middling results especially given that 3 years have passed. Additionally, the SEC and FINRA have stepped up enforcement efforts this year. According to the group, there remains room for improvement especially as many brokers remain uncertain about the rule and its application to products like annuities, leveraged products, private placements, or other alternative investment products.
Many firms are creating their own protocols regarding compliance and spending more time on understanding their clients’ risk tolerance and goals before providing recommendations. However, the group also found that many brokerages are too lax especially when it comes to providing disclosures and alternative recommendations.
FinSum: The North American Securities Administrators Association conducted an audit of brokerage to see how Reg BI compliance efforts are going.
REITs are in the midst of another leg lower and have effectively wiped out their gains from May and July with a 9% decline over the past six weeks. Year to date, the sector is down by 7% while it was up as much as 9% at its highest point in the year as measured by the Vanguard Real Estate ETF. This follows even steeper, double-digit losses in 2022.
In recent months, the weakness of the long-end of the Treasury curve has hit all types of yield-generating assets like REITs and dividend-paying stocks. Fed fund futures markets are downgrading the chances of rate cuts in 2024 while extending the duration that rates will remain at these levels. There is even increased chatter about how the Fed’s terminal rate must even go higher in order to truly stamp out inflation.
It’s a double-edged sword for REITs as the bulk of the sector continues to deliver impressive financial results with defaults remaining low especially in areas with strong fundamentals like healthcare and industrials. Yet, the stocks are unlikely to rally as long as rates remain elevated at these levels even despite attractive yields.
Finsum: REITs are in the midst of another leg lower and falling to new annual lows due to an uptick in inflationary pressures and the Fed coming out more hawkish than expected.