In an article for MarketWatch, Mark Hulbert discusses the collapse of the volatility index (VIX) over the last couple of months, and why it could be a harbinger of a sustained stock market rally according to historical data. 

According to Hulbert when the VIX reaches a fresh, 3-year low, it’s likely to remain low for a couple more months which implies further gains for equities. However, this view is contrary to the consensus expectations on Wall Street which see further erosion in the economic outlook, causing the economy to stumble into a recession. This perspective sees the low Vix as a sign of complacency rather than a ‘continuation’ signal.

Hulbert points to history. Since 1990, the best performing months from a risk and return perspective, have come with low VIX readings. Based on this data, investors should increase equity allocations as the volatility index declines and reduce it as it rises.

Another benefit of this strategy is that it dampens the impact of volatility on the portfolio which increases the odds that investors will stick to their investment plan and not let the market’s twists and turns shake them out of their holdings. 

Finsum: Many on Wall Street see the plunge in the volatility index as a contrarian signal, implying complacency. Mark Hulbert disagrees and sees it as the start of a sustained rally.

In an article for SeekingAlpha, Armada ETF Advisors make the case for why public real estate is due to outperform vs private real estate given the gap in valuations. Over the last couple of years, the combination of the Fed’s rate hiking campaign and weakness in segments of the real estate market like commercial real estate have led to major drawdowns for publicly traded REITs. 

In contrast, private real estate has fared much better. According to Armada, these types of wide differentials in performance have been reliable indicators of mean reversion, historically. In addition to favorable valuations, the firm also believes that the headwind of higher rates is about to recede given trends in inflation and budding signs that a recession is imminent.

Over the last 2 decades, there have been 8 instances when REITs underperformed by more than 10%. Each instance was followed by a period of strong REIT performance in absolute and relative terms. 

It’s also a rare opportunity for investors to acquire high-quality real estate assets at cheaper prices than what is available in private markets. Typically, the situation is inverted given the greater liquidity of publicly traded REITs. 

Finsum: Private real estate has outperformed public real estate by a significant amount over the past year. But, it could be an indication that a major mean reversion is imminent. 

In an article for Reuters, Ross Kerber reported on Tesla being added back to the S&P 500 ESG index following the EV maker adding environmental disclosures regarding its material sourcing and hiring practices.

Tesla was removed from the index last year following a series of controversies including a racial discrimination lawsuit and reports of crashes due to its autopilot program. At the time, CEO Elon Musk had been dismissive of the movement, labeling it a ‘scam’. S&P attributed the change to the company providing more information about climate risks and information about its supply chain management strategy.

The move is seen as symbolic given that only about $8 billion in assets is linked to the S&P 500 ESG index. However, it could start other ESG funds adding the EV leader to its holdings. 

Currently, the S&P ESG Index is going through this annual rebalancing with 39 companies being added, while 23 were removed. Notably, some of these moves have drawn scrutiny from people on both sides of the aisle given the additions of Chevron and Fox, while Exxon Mobil had previously been a member of the index, while Tesla was excluded. 

Finsum: Tesla has been added back to the S&P ESG Index after providing disclosures about its hiring practices, climate risks, and supply chain strategy.

In an article for ThinkAdvisor, Dinah Wisenberg Brin discussed a recent bullish commentary on various segments of the fixed income market from John Hancock’s co-chief investment strategist Matthew Miskin. 

Miskin sees the current inverted yield curve as due to normalize in the coming months as the Federal Reserve embarks on a cutting cycle given the firm’s view that the economy should continue to decelerate along with cooling inflation. This will create a bond ‘bull steepener’ as short-term rates decline.

It sees a recession materializing over the next couple of quarters which would be a positive tailwind for fixed income. He sees opportunities in intermediate duration bonds which historically have performed the best following yield curve inversions. Further, he sees value in the space given that the average investment-grade, intermediate bond portfolio is trading at 90 cents on the dollar with a 5% yield. 

Miskin is also bullish on municipal bonds given historically attractive yields of 7% on a ta-equivalent basis for the highest earners. In terms of equities, the firm is not a believer in the current stock market rally given weakness in earnings and its expectations of a further softening of the economic picture. 

Finsum: John Hancock’s co-chief investment strategist is bullish on fixed income with a particular focus on intermediate duration and municipal debt.

The alternative investing trend was growing at a rapid clip over the past decade, but its seen an uptick in interest and adoption following the poor performance of stocks and bonds. While both asset classes have delivered strong, long-term results, they have performed poorly in inflationary, higher-rate environments.

In contrast, alternative investing delivered better returns while also reducing portfolio volatility. As access to this category has increased, there is more liquidity and transparency which is, in turn, attracting more interest from institutions.

In an article for Business Kora, Jung Min-Hee covers how the Korea Investment Corporation (KIC) will be increasing its allocation to alternative investments to 25%. Currently, it is the 10th largest sovereign wealth fund in the world and has $170 billion in assets. As of the start of the year, it had 22% allocated to alternatives.

In an interview, KIC President Jin Seung-ho indicated that the fund is particularly interested in private credit as he doesn’t see too much risk in this segment of the market. Concurrently, he doesn’t see the Fed cutting rates until 2024.

Finsum: Many financial advisors are nearing retirement. One option that is growing in popularity is for advisors to sell their practice but remain as an employee for a certain amount of time.

In an article for InvestmentNews, Kristine McManus, the Chief Advisor Growth Officer at Commonwealth Financial, discussed various considerations for advisors who are nearing retirement. Many want to exit their own business in a gradual way rather than suddenly and continue working with new owners to provide a seamless transition for their clients. 

According to Commonwealth's research, financial advisor M&A data over the last decade shows that there were 359 deals. In 205 of the deals, the advisor who was selling, immediately retired and exited the business. However, a third of the deals saw the advisors remain past the acquisition.

Some of the positives of this approach are that it leads to less client attrition and provides a natural way to introduce clients to the new management team. For the selling advisor, it allows them to gradually ease into retirement while slowly letting go of responsibilities in a more organic way while ensuring that their business and clients are in good hands.

There are some negatives which include a potential clash in management styles or investing philosophy between the seller and acquirer. Often, the selling advisor has difficulty giving up control when it comes to making major decisions and transitioning into an employee role. 

Overall, both parties need to be aligned in terms of goals and constant communication in order to minimize the negatives and accentuate the positives with this type of transaction.

Finsum: Many financial advisors are nearing retirement and need to have a succession plan.  One option that is growing in popularity is for advisors to sell their practice but remain as an employee for a certain amount of time.

Many RIAs are testing out new pricing models and moving away from the traditional practice of taking a cut of assets under management especially for placements into alternative investments. In a piece for AdvisorHub, Suman Bhattacharyya covers some examples.

Overall, there is increasing pushback from clients about paying management fees especially when the market is falling. Additionally, these annual fees can compound over time and become a significant amount especially for long-term clients. 

These concerns are magnified in years with lower or negative returns. Some advisors are choosing to take a cut on performance, between 10% and 20%, to align clients and advisors’ interests. Others are moving to a fixed-fee model which means either billing by the hour, charging a subscription or a fee per project.

According to some, 2022 which saw negative returns for stocks and bonds is simply accelerating what had been a developing trend. Despite these changes, 82% of revenue for RIAs come from fees on total assets under management. 

Therefore, RIAs reliant on these fees for their business should consider alternative models or at least prepare for conversations with clients about the matter. 

Finsum: The vast majority of RIAs are reliant on fees generated by total assets under management. However, many clients are electing to move away from this model. 

In an article for Bloomberg, Larry Berman discussed recent improvements in stock market breadth, and what it could mean for volatility. One defining feature of the stock market rally has been the limited participation as the bulk of gains have been driven by the tech sector and a handful of mega cap stocks. 

But, this is now changing as economic data continues to come in better than expected, and more parts of the market are joining the rally. According to Berman, this is an indication that the market rally could be in its early innings which means that recent weakness in volatility is likely to linger. 

Berman labels this as a ‘bullish divergence’. However, he notes that future contracts of volatility are not yet depressed as the front-month contract. This is an indication that the market does expect volatility to pick back up in the second-half of the year which is also consistent with many analysts who see the economy falling into a recession by then. 

He believes that some sort of catalyst is necessary for the bearish scenario to develop which isn’t evident at the moment. This is especially the case as many of the ‘risks’ faced by the market at the start of the year haven’t materialized. 

Finsum: There’s an interesting divergence in the market with front-month volatility depressed, while future contracts remain elevated. However, improving market breadth may signal that future month contracts may also move lower in the coming weeks. 

Amid the growing backlash to ESG investing, several anti-ESG funds were launched. Yet, these haven’t seen a significant surge in terms of inflows or returns that would indicate that the category will have long-term success.

According to Morningstar, inflows into these funds peaked in the third quarter of 2022 at $377 million but have dropped by more than 50% to $183 million in the first quarter of the year. 

Currently, there are 5 types of anti-ESG funds. Some are political and favor companies that are penalized by ESG factors. Another type are vice funds which invest in ‘sin’ stocks related to alcohol, tobacco, and firearms. There are also voter funds which look to vote against any ESG initiatives. Finally, the largest category are funds that previously used ESG factors for investment decisions but no longer do so. 

The biggest player in the anti-ESG market is Strive Asset Management, which was founded by Republican presidential candidate Vivek Ramaswamy and aims to compete with Blackrock and Vanguard. Its first fund saw strong demand but later funds have seen minimal enthusiasm with an average of $5 million of inflows. 

Finsum: Anti-ESG is an investing theme that launched last year, and many believed had potential. So far, there are limited signs that it's showing significant traction. 

At Morgan Stanley’s annual US Financials, Payments & Commercial Real Estate conference, CEO James Gorman said that the bank is no longer relying on financial advisors recruiting for growth. 

Gorman sees future growth coming from the ‘funnels’ that Morgan Stanley has built which it sees as key to the next $1 trillion in assets it aims to bring over the next 3 years. After a fevered pace of advisor recruiting, the company is seeing minimal movement other than small teams coming and going. 

As part of the changing landscape, Morgan Stanley will only be recruiting high-quality teams with substantial assets. This does affect the marketplace given that Morgan Stanley has been one of the most aggressive in terms of recruiting over the past couple of years. 

Overall, the bank is moving towards a more holistic, comprehensive strategy when it comes to acquiring assets. In the first quarter, it added $110 billion in new assets. $28 billion came from workplace channels, $20 billion came from advisors hired away from struggling regional banks, and the majority of the remainder came from existing brokers. 

In the future, Gorman sees the workplace channel as being its most significant source of growth, especially given that the cost of luring advisors continues to increase. 

Finsum: Morgan Stanley has been a leader in advisor recruiting. But, this is changing as evidenced by CEO James Gorman’s recent comments.