Orion Advisor Solutions recently unveiled significant enhancements to its technology during the opening session of the firm’s flagship Ascent conference. Founder and CEO Eric Clarke addressed an audience of 1,600 advisors and revealed the firm’s new Story Paths advisor-facing technology for its Orion Custom Indexing solution. The new technology will allow advisors to easily select from one of several user paths which allows the advisor to customize portfolios or tax transition legacy assets within a handful of steps and minutes. The announcement comes as consumer demand for more personalized services has increased with assets in direct indexed SMAs ballooning to $362 billion. Orion’s Custom Indexing solution, which was launched in 2018, allows registered investment advisors to differentiate their offering with personalized, professionally managed, low-cost portfolios. Clarke stated, “While other direct indexing solutions cater almost exclusively to wirehouse advisors, we set out to build a solution with a heavy emphasis on customization that meets the needs of the independent advisor.” The new Story Paths workflow enables advisors to create truly custom portfolios at scale, whether they’re aiming to track a traditional index, replicate a factor-tilted exposure, or overlay to an existing internal or third-party separately managed account. In addition, the new technology will streamline the portfolio customization and tax transition process to a matter of minutes compared to the industry normal of multiple days.

Finsum:Orion recently unveiled new enhancements to its direct indexing technology that will allow independent advisors to create truly custom portfolios at scale within minutes.

Investors have continued to pile into ESG funds amid a strong political backlash and new regulations, but what impact does ESG have on expected returns? In their book, Your Essential Guide to Sustainable Investing, Larry Swedroe, and Sam Adams presented the answer to that question from research that included studies from 2017, 2018, 2019, 2020, and 2021. They found that in both U.S. and international markets, ESG strategies’ returns were well explained by their exposures to the Fama-French factors of market, size, profitability, investment, momentum, and value; and multifactor alphas were not significantly different from zero. This indicates that any benefit from incorporating ESG strategies into a portfolio is already captured by other well-defined and known equity factors, meaning investors could not improve their Sharpe ratios by using ESG strategies. They also found that return and risk differences of ESG funds could be significant and were mainly driven by fund-specific criteria rather than by a homogeneous ESG factor. In addition, across four fund categories including index, active, exclusion-based, and non-exclusion based, the majority of observations displayed higher volatility than the broader market. Swedroe and Adams also noted that environmental and social scores did not contribute to performance. However, if investors want to have their cake and eat it too, then they should tilt their portfolios to sustainable firms with exposure to the Fama-French factors of size, investment, profitability, value, and momentum.

Finsum:In their book, Your Essential Guide to Sustainable Investing, Larry Swedroe, and Sam Adams presented evidence that ESG strategies don’t provide any return benefit unless they’re tilted to Fama-French factors of market, size, profitability, investment, and momentum.

Following the bouncing…fixed income ETFs? On the heels of last year, during which fixed income funds took a licking, they’re rediscovering their mojo. That stems at least partially from  an inverted yield curve, according to cnbc.com.

In January in alone? Well, bond exchange-traded funds accumulated $20 billion. By contrast, all of last year, the total came to around $200 billion in bonds.

“There’s now income within the fixed income ETFs that are available,” Todd Rosenbluth, head of research at VettaFi, told Mike Santoli on CNBC’s “ETF Edge.” “We’ve seen higher-quality investment-grade corporate bond ETFs. We’ve seen high-yield fixed income ETFs see inflows this year, as well as some of the safer products.”

A rebound, seems to be in -- of all places -- the air, for bonds this year, in bonds, according to schwab.com. The returns in the fixed income markets, according to schawb.com. 

Despite a host of challenges – including a tumultuous global economy and an unstable U.S political climate, also a factor abroad – this year, there are opportunities for the bond market that translate into handsome yields for investors at lower risk than has been the case for years.

Volatility? For at least the immediate future, when it comes to the market, it seems to about the only stable thing going.

Volatility’s on pace to remain on the high side – with the volatility index averaging about 25, according to jpmorgan.com. As the Fed over squeezes into weaker fundamentals, the S&P’s expected to again test last year’s lows.

“In the first half of 2023, we expect the S&P 500 to re-test the lows of 2022 as the Fed overtightens into weaker fundamentals. This sell-off combined with disinflation, rising unemployment and declining corporate sentiment should be enough for the Fed to start signaling a pivot, subsequently driving an asset recovery and pushing the S&P 500 to 4,200 by year-end 2023,” said Dubravko Lakos-Bujas, global head of Equity Macro Research at J.P. Morgan.

“We all know it’s been a tough year for investors. We’ve been through monetary tightening and persistent inflation across global economies,” said Ryan Murray, CFP, with Vanguard. “We’ve seen an unprecedented period of volatility in the bond market, where such fluctuations are highly unusual.”

Give the inherently unpredictability of markets, in the face of extreme volatility, shucking aside your long term plan will certainly cross the minds of investors, he noted. “But it’s important not to let emotions get the better of you or push you to make a reactive decision that could put your hard-earned savings at risk.

According to survey findings published by Natixis Investment Managers, fund selectors are enhancing their model portfolio offerings. Natixis surveyed 174 investment professionals in North America who are responsible for their firms’ top-of-the-house selection of funds into which $18.7 trillion in client assets are invested among private banks, wirehouses, registered investment advisors, independent wealth managers, and other advisory firms. The findings are part of a larger global survey of 441 professional fund selectors, which was conducted in December 2022. Based on the survey results, fund selectors are enhancing their offerings because model portfolios help to streamline the investment management process (86%), enable advisors to spend more time addressing client needs (82%), and help to ensure a consistent investment experience for clients (77%) while managing risk exposure for the firm (78%). They also agree that heightened market volatility is accelerating advisors’ use of model portfolios (65%), while models enhance the alpha potential for their clients (62%). The survey also found that 58% of fund selectors are finding a greater need for specialty models to complement the core models that advisors use for building client portfolios. The types of specialty models include models with enhanced customization tailored to high-net-worth clients (46%), models with a focus on alternatives (42%), income generation (43%), tax management (38%); sustainability (34%), and thematics (28%).

Finsum:Based on the results of a Natixis survey, fund selectors are enhancing their model portfolio offerings to help to streamline the investment management process, and enable advisors to spend more time addressing client needs, while managing risk exposure for the firm (78%).

With ESG investors pressuring companies to transition to sustainable businesses, BP’s chief executive Bernard Looney is warning that the energy transition needs to happen in an orderly fashion or else oil and gas prices will spike if supply is cut too quickly without a drop in demand. Looney stated the following at the recent International Energy Week event in London, "Reducing supply without also reducing demand inevitably leads to price spikes – price spikes, leads to economic volatility." He added that we need, “Affordable energy flowing where and when it's needed... Investing in energy security and the energy transition. This is Looney’s second warning for the need for an "orderly transition.” In early February, he stressed "an orderly" transition when he announced that BP would be producing more oil and gas for longer, and now aims for a fall of 20% to 30% in emissions from the carbon in its oil and gas production in 2030 compared to a 2019 baseline, lower than the previous aim of 35-40%. At the London event, he also noted that “People today want an energy system that works. That provides secure, affordable, and low-carbon energy - what the Energy Institute calls the triple energy crisis."

Finsum:At a recent energy event in London, BP CEO Bernard Looney warned for the second time that the energy transition needs to happen in an orderly fashion or else oil and gas prices will spike.

The strong demand for bonds this year has led to a windfall for BlackRock’s fixed-income exchange-traded funds. The fund giant has attracted more investor cash since U.S. rates started rising than all of its competitors combined. The inflows to fixed-income funds are being driven by regulatory changes and creative uses by wealth managers and other bond funds. Deborah Fuhr, the founder of the ETFGI consultancy, told FinancialTimes that “There have been significant changes about the way people think about fixed-income ETFs in the past year. We have seen large funds and asset managers put their portfolios in ETFs . . . rather than buying bonds and trying to manage them themselves.” Salim Ramji, BlackRock’s global head of ETF and index investments added, “We’re finding and expanding into all parts of the bond market in multiple different slices . . . Any part of the bond market that can be accessed through an ETF, we’re capturing that.” This includes ETFs such as IBTG, which only holds U.S. Treasury bonds maturing in 2026. Another fund is LQDB, which purely contains BBB-rated corporate bonds. These ETFs allow active fund managers to use them in different ways. For instance, some use a specific slice to tilt their portfolio either to longer or shorter-duration bonds, which depends on their view of the economy. Ramji also noted that BlackRock ETF users include nine of the ten largest active managers and eight of the ten largest U.S. insurance companies.

Finsum:As demand for fixed income increases, Blackrock has created ETFs that track a small slice of the bond market that active managers can use in a variety of ways.

Several fund firms are looking to expand their fixed-income product lines to take advantage of the growing interest in the asset class. Fixed income had experienced a couple of turbulent years as the Federal Reserve's rate increases impacted yields and made equities more volatile. Plus, actively managed fixed-income mutual funds experienced one of their worst years on record in terms of outflows. However, the demand for fixed income this year appears to be gaining steam with several firms positioning themselves to take advantage of this trend. For instance, BlackRock has been rolling out new products to meet fixed-income demand. In January, the firm launched the BlackRock AAA CLO ETF, which has already taken in more than $30 million in assets as of Feb. 21st. Plus, last year, BlackRock launched a first-of-its-kind series of fixed-income ETFs that are designed to provide access to buy-write investment strategies on baskets of fixed-income securities. According to Steve Laipply, U.S. head of iShares Fixed Income at BlackRock, “The theme here is building out different tools for investors to navigate the environment so you continue to see this floating rate theme across the credit spectrum.” The firm is eyeing additional products in the future. Laipply also added that the industry will begin to get more creative when it comes to rolling out new products in the fixed-income space.

Finsum:After a couple of turbulent years, fixed-income funds are seeing increased demand, leading fund firms to take advantage of the trend by launching new products.

While housing prices have recently fallen, don’t expect a market crash like in 2008. That is according to Jack Macdowell, co-founder, and chief investment officer at alternative asset manager Palisades Group. In a January note, Goldman Sachs strategists predicted that national home prices would fall by at least 10% peak-to-trough this year, but Macdowell disagrees. He stated, "People may be concerned that we're entering into another global financial crisis-type event, where we'll see a ton of distressed inventory on the market putting downward pressure on home values. I would argue that I don't think that's the case." To back up his point, Macdowell noted that today's lenders have become smarter about loan origination than they were in the past, which helps mitigate overall default risk in the market. He also said that the ratio of mortgage debt service payments versus disposable income is currently at historically low levels, versus its peak in 2007. According to him, both of these factors lead to the unlikeliness of a "2008-esque housing" crash. In addition, Macdowell points out that in comparison to historical levels, current mortgage rates are still considered to be fairly low and while demand has fallen across the nation, Macdowell believes a low housing supply is a reason to buy the dip in existing homes sales.

Finsum:Real estate CIO Jack Macdowell doesn’t expect a 2008-style housing crash as lenders have become much smarter about loan origination and the ratio of mortgage debt service payments versus disposable income is at historically low levels. 

Investors are bracing for more market volatility as traders buy up hedges at the fastest clip since the start of the Covid-19 pandemic. According to Cboe data, call options betting that the Cboe Volatility Index (VIX) will rise are the highest on an average day in February than at any time since March 2020. After not much movement for months, the VIX, which is also known as Wall Street’s fear gauge, rose above 23 last week, its highest level since the first few trading days of the year. Readings below 20 usually signify complacency, while readings above 30 signal investors are looking for protection. The increased demand is due to two reasons. First, when stocks rebounded at the start of the year, investors jumped back into the market, restoring a need to hedge their portfolios. In addition, recent economic data increased the likelihood that the Fed will be forced to continue raising interest rates to slow inflation, stalling the stock rally. The S&P 500 saw three consecutive weeks of declines, which was capped by a hotter-than-expected reading on the personal consumption expenditures price index, the Fed’s preferred gauge of inflation. The CME Group Volatility Index, which tracks volatility in the Treasury market, also recently reached its highest levels in more than a month.

Finsum:Investors are bracing for more volatility in the market as call options betting that the VIX will rise are at their highest mark since the start of the COVID pandemic.