After a rough 2022 for fixed income, 2023 has seen the asset class eke out modest gains. But, it hasn’t been smooth sailing especially in recent months as most of the gains have been wiped out amid a deluge of positive economic data which is increasing the odds that the Fed’s rate hikes are not done and increases the risk of inflation re-igniting.

However, this hasn’t slowed inflows into fixed income ETFs. According to ETF.com’s Michelle Lodge, the major reasons are higher yields, increased awareness from advisors and institutional investors, and continued uneasiness about the macro environment. In fact, inflows into fixed income ETFs are outpacing inflows into equity ETFs. 

Many believe there is a virtuous cycle at work. Fixed income ETFs are increasing liquidity which in turn, is leading to more institutional money flowing into the asset class. The virtuous cycle could pick up more velocity with active fixed income growing in popularity as many of these funds look for opportunities in less liquid areas of various durations and credit quality. 

Overall, the popularity of fixed income ETFs is a major development in 2023 even despite a volatile couple of years for bonds. 

FinSum: Fixed income ETFs are seeing strong inflows in 2023. This can be attributed to higher yields, a shaky macro outlook, and strong demand from advisors and institutional investors.

In an article for InvestmentNews, Emile Hallez reports on annuity sales reaching record levels in the first-half of 2023. Demand for these products is due to the highest interest rates in decades, coupled with economic uncertainty with factors like inflation and concerns of a recession. Overall, annuity sales reached $182.9 billion in 2023 which is a 28% increase from the first-half of 2022. 

One of the fastest-growing annuity categories is registered index-linked annuities (RLIA). These have gone from a fraction of the annuity market to becoming one of the most popular in 2023. In 2017, only 4 companies offered these products, while 17 do so currently with others planning their own offerings in the coming months. 

Interestingly, RLIA sales are up 8% compared to the first-half of 2022 but sales of traditional variable annuities are down 25%. RLIAs are different from variable annuities because they offer more protection with some also offering some sort of guaranteed income. 

Recent developments are supportive of continued inflows into these products especially given what’s happening in other asset classes. Equities have enjoyed a surprisingly robust performance, but it’s leading to concerns about valuation. Fixed-income also offers generous yield, but the asset class posted negative returns in 2022 and middling returns in 2023. Therefore, it’s likely that annuities continue to see record inflows in the second-half of the year. 

Finsum: The outlook for annuities is quite strong for the second-half of 2023 given high interest rates, an expensive stock market, and volatility in fixed income.

Many advisors and wealth managers are switching to model portfolios and taking a more hands-off approach when it comes to constructing and managing clients’ portfolios. The upside of this is clear as it gives advisors more time to spend on client relationships and building their business. According to surveys, about 35% of an advisors’ time is spent on managing and researching investments.

Yet, it doesn’t make sense as an advisors’ ultimate success depends on retaining and recruiting clients and helping them reach their financial goals rather than the incremental gains that can be theoretically achieved by spending more time researching investment ideas. 

According to Cerulli Associates and covered by Kenneth Corbin in Barron’s, many large brokerage firms are also embracing model portfolios and encouraging brokers to spend more time with clients. Cerulli’s research shows that in down years for the market, 60% of advisor portfolios underperform the market, undercutting the rationale for more active management. 

 68% of brokerage firms are now moving away from advisor-constructed portfolios. In the future, they see advisors serving more as ‘holistic financial planners’ rather than stock-pickers or portfolio managers. Over long periods of time, model portfolios outperform most advisor-generated portfolios with much less risk or concerns about compliance or conflicts of interest. 

Finsum: Large brokerage firms are encouraging advisors to embrace model portfolios especially given lackluster returns of many advisor-built portfolios and the extra time and energy it gives for client service.

Your eyes don’t deceive you. Well, at least not this time.

In the second quarter of the year, there was a bounce of 12% year over year to $88.6 billion, reported limra.com. The catalyst: a tag team of unprecedented registered index linked annuity and fixed indexed annuity sales, according to preliminary results from LIMRA’s U.S. Individual Annuity Sales Survey.

“Double-digit equity market increases and stable interest rates have prompted investors to seek out greater investment growth opportunity through RILAs and FIAs,” according to Todd Giesing, assistant vice president, LIMRA Annuity Research. Economic conditions continue to be favorable for the annuity market, he added.

-Last year, fueled by volatility in the equities markets and a spike in interest rates, there was a bump in annuities sales, according to winintel.com. Also in 2022, total U.S. annuity sales hit $310.6 billion -- a 23% increase over 2021. And, wait, there’s more. For you history buffs, it was a jump of 15% from the sales record hit in 2008.

At the latest FOMC meeting, Fed Chair Jerome Powell made some headlines when he struck a dovish tone despite resuming its normal schedule of quarter-point rate hikes. He also slightly upped his assessment of the economy declaring it growing at a ‘moderate’ pace while it has been described as growing at a ‘modest’ pace previously. 

In terms of fixed income, the asset class initially saw a decent rally due to many investors interpreting Powell’s dovishness as an indication that the Fed is in the final stages of its hiking campaign. But, these gains were quickly given back with yields spiking higher following the stronger than expected GDP print which came in at 2.4% vs expectations of 1.6%. 

Following this print, odds of the Fed cutting rates in the first-half of 2024 declined, and many market forecasters pushed back or revised thier prediction of a recession as well. With the economy robust despite higher rates, it’s likley that rates stay elevated for longer. Adding to the weakness was unemployment claims coming in lower than expected, adding to evidence that the labor market is re-accelerating following a period of softness. 

As a result, Treasury yields spiked hihger and are now approaching their 52-week highs.

Finsum: Fixed-income enjoyed a nice rally following the dovish FOMC meeting. But, the asset class weakened following a stronger than expected GDP print and lower than expected unemployment claims. 

REITs are attracting attention from investors for a variety of reasons. For one, it’s looking increasingly likely that the US will avoid a recession which bodes well for occupancy rates, property values, and home prices. Second, the Fed is in the final stages of its rate hike cycle which means interest rates will go from a strong headwind to a mild tailwind especially if inflation continues to move lower. 

Due to weakness over the past year and a half, REITs are quite compelling from a value perspective while also offering juicy yields to investors. For Benzinga, Kevin Vandenboss identifies 2 REITs that investors should consider buying.

He likes SL Green Realty which is an owner and operator of premium Manhattan commercial real estate property. While many areas of commercial real estate like offices and retail may never recover, SL Green is a bet that premium properties will recover - a historically savvy bet. Currently, the stock yields 8.8% and has a stable payout ratio of 59%, indicating a stable dividend.

Another is Medical Properties Trust which focuses on hospital facilities and has properties in 10 different countries, leading to a diversified portfolio. Also, medical facilities tend to be much more stable than residential or commercial real estate especially given an aging population in most parts of the world. Finally, it also has a dividend yield of 11% and a track record of annual dividend increases. 

Finsum: While REITs have been an underperformer for much of the past couple of years, the sector offers juicy yields and tantalizing upside given recent macro developments.

One of the most puzzling developments over the past 18 months is the wide gap between public and private real estate. Many publicly traded REITs are down between 30% and 40% from their highs in 2021, while private real estate funds are flat or have losses in the single-digits. 

There are a variety of theories to account for this disconnect, including expectations of mounting losses in commercial real estate (CRE) given that office occupancy rates are not returning to pre-pandemic levels. However, it’s also fair to note that in recent months publicly traded REITs have outperformed and somewhat shrunk the gap. In Institutional Investor, Hannah Zang covers why many investors are seeing an opportunity in REITs and believe that the market is overreacting to weakness in CRE especially given that it only accounts for 3% of the total REIT market.  

Currently, the cap rate for REITs is 50 basis points higher than private real estate. Historically, this has indicated a buying opportunity in the sector especially as some of the macro headwinds of the sector seem to be dissipating with the vast majority of real estate prices holding steady and the Fed in the final innings of its rate hike cycle. 

Finsum: There’s an interesting divergence between private and public real estate. However, many investors see opportunity in publicly traded REITs and believe that investors have overreacted to macro and CRE issues.

What firm doesn’t need a pick me up; you know, from time to time? Well, you might want to try on a model portfolio for size, according to investmentnews.com.

Addressing part and parcel of the financial picture of a client’s key to helping advisors erect a business. 

Streamlining the management of the portfolio process – yet not to the detriment of client trust or the performance of a portfolio is an approach. One way to make it click is through the use of a model portfolio.

A few ways to go about it:

MODEL PORTFOLIOS FOSTER MORE EFFICIENT RELATIONSHIPS

MODEL PORTFOLIOS OFFER CONSISTENT ANALYTICS

MODEL PORTFOLIOS IMPROVE RELIABILITY

MODEL PORTFOLIOS PROVIDE BLENDED STRATEGIES TO IMPROVE CUSTOMIZATION

Consequently, probably not surprisingly, increasingly, model portfolios are finding their mojo, gaining greater popularity, according to smartasset.com.

The proof’s in the bottom line. According to Morningstar, as of March of last year, assets following model portfolios swelled to $349 billion. Between June 30 of 2021 and March 31 of last year, that’s a hopscotch of an estimated 22%.

The cultivation of talent’s come a long way. Baby.

At its center: succession planning, according to sigmaassessmentsystems.com.

SIGMA – with the intent of providing organizational leaders with a snapshot of what’s unfolding today in succession planning – produced a report on where things stood this year. Several emerging trends were revealed: 

Most organizations are focused on recruiting and retaining staff.

Many organizations recognize that they must keep up with industry innovation.

Many leaders are committed to improving customer experience.

A significant number or organizations want to transform their brand and culture

Interestingly, new financial advisors are setting a high rate of bolting from the industry, according to a Cerulli Associates report, reported financial-planning.com.

The importance of new talent in wealth management is further stoked given the fact financial advisors, who oversee trillions of dollars of assets, are riding into the sunset.

Yet, those making their maiden voyage into the profession aren’t exactly being received with a steaming mocha latte and scone, according to Cerulli, which reported that while 13,169 of new trainees left the industry in the rearview mirror, offsetting the more than 18,000 it picked up,

For SmartAsset, Rebecca Lake CEFP shares some tips for financial advisors when it comes to hiring new employees and building a team. This is usually an indication that an advisors’ business is growing and that she is ready to offload some responsibilities. Often, many advisors wait too long to hire someone given the time and cost involved, however hiring the right people is paramount to helping your practice succeed.

Lake recommends implementing a team structure with small groups working together and responsibilities clearly defined and distributed. This can help people focus on their strengths and gain more expertise with their tasks. For instance, a member can be in charge of outreach to new clients to ensure the practice has a steady pipeline of prospects.

Depending on the size of the firm, teams can be organized differently with 3 common approaches - vertical, horizontal, or hybrid. A vertical team structure allows the advisor to focus on meeting clients and managing portfolios, while other employees provide support and handle other tasks. This is the way that most practices are set up. 

In order to find the best structure for your firm, Lake suggests making it consistent with how your firm is currently organized. For example at a small practice with a sole advisor, a vertical approach is ideal. She also suggests defining key roles for each member, outlining team goals, and selecting appropriate members for each team based on skills, personality, and experience. 

Finsum: Growing a financial advisor practice requires going beyond just client outreach and portfolio management. It requires setting up efficient and scalable systems.