According to Nareit, an organization that represents the REIT industry, REITs posted their best monthly returns since January 2019 and outperformed the broader markets. The FTSE Nareit All Equity REITs index jumped 10.1% while the FTSE Nareit Equity REITs index rose 10.7%. Those figures compare favorably to the 7.0% gain of the Dow Jones U.S. Total Stock Market and the 6.7% gain for the Russell 1000. The strong returns came as a result of investor optimism stemming from the widely expected belief that the Federal Reserve will pivot from its rate hiking cycle as inflation slows. In addition, REIT operational performance continues to be strong. For instance, REITs reported a new all-time high of $19.9 billion in funds from operations in the third quarter of 2022 according to Nareit’s T-Tracker. During January, all property sectors had a positive performance. The top sectors include lodging/resorts with a 17.1% gain, industrials which rose 13.7%, and data centers at 13.2%. Even the laggard sectors were positive, with retail rising 7.4% and infrastructure gaining 6.8%. Global real estate markets also performed strongly with the FTSE EPRA Nareit Developed index gaining 9.0% compared to a 7.3% gain for the FTSE Global All Cap. In terms of regions, Developed Europe led with a return of 10.8%, followed by North America at 10.7%, and Developed Asia at 3.7%.

Finsum:REITs posted the strongest monthly performance since January 2019 as investors remain optimistic that the Fed will slow its rate hiking policy and REIT operational performance remains robust.

Buying and selling real estate properties can be quite lucrative for investors, but incurring capital gains taxes can weaken profits. What if there were ways to limit capital gains taxes on properties? In a recent article in SmartAsset, Ashley Kilroy suggested a few different ways for investors to limit their capital gains on real estate properties. The first to employ tax-deferred funds. For instance, you don't have to buy real estate with cash. You can use your IRA or 401(k). By depositing profits in your account, it allows your money to grow tax-free. Second, you can make the property your primary residence. The IRS exempts primary residence sales from capital gains taxes up to $500,000 for married filers and $250,000 for single filers. Third, employing tax-loss harvesting can help you avoid capital gains, assuming you are selling one property for a loss and another for a profit. Fourth, utilizing the 1031 Exchange allows you to use the income from the sale of one property to purchase another property of equal or greater value. In this scenario, you wouldn’t have to pay taxes on prior depreciation deductions. Fifth, the IRS allows rental property owners to deduct an annual depreciation amount from their income. Sixth, you can deduct the costs of managing property through itemized deductions, which lowers your tax burden. Seventh, improving your property boosts your property basis which can shrink your capital gains taxes and increase your property value.

Finsum:A recent article on SmartAsset provided seven different ways investors can limit their capital gains taxes on their real estate properties.

There’s no question that ETFs are a popular way to gain access to the market. They’re low-cost and tax efficient when compared to mutual funds. But, according to a new research paper, ETFs are not the most profitable after taxes are paid. That distinction belongs to large baskets of individual stocks that aren't found in a fund. The paper, which was posted recently by Roni Israelov, the president and chief investment officer of NDVR, and Jason Lu, a research economist in the economic modeling division of the International Monetary Fund, sought to quantify tax-loss harvesting, the strategy of selling losing assets to offset taxable gains that arise when selling winning ones. The paper found that tax-loss harvesting produced the best results when it's used for groups of individual stocks, not ETFs. In a recent interview, Israelov said "You make more money harvesting single stocks across an entire portfolio than you do in an ETF." The paper adds to a growing body of wealth management firms that have been promoting the merits of tax-loss harvesting and boosting the case for direct indexing, a strategy in which investors chose a basket of securities that mirror an index, but is personalized to their specifications.

Finsum: A new research paper found that tax-loss harvesting produced the best results when it's used for groups of individual stocks, not ETFs, boosting the case for direct indexing.

Robin Döttling, an assistant professor of finance in the Rotterdam School of Management at Erasmus University in the Netherlands, and Sehoon Kim, an assistant professor at the University of Florida’s Warrington College of Business, authors of a recently published academic study, found that individual investor demand for socially responsible investing “is highly sensitive to income shocks” and economic stress. The professors went through mutual fund flow data and surveyed investors' views of and expectations for sustainable investing. The study focused on the periods immediately before and after the COVID pandemic went global in early 2020. The results show that when times get tough for individual investors, helping to save the planet takes a backseat to selling funds that they believe may lose more during a downturn. When an economic shock results in incomes shrinking, investors become more risk-averse. In the authors’ words, “We start to view the emotional or nonfinancial appeal of ESG investing as ‘costly’ and ‘unsustainable’ if it means forfeiting returns.” However, the study found that demand for ESG investments from institutions such as pension funds remained more robust. Their actions are typically constrained by investment mandates and are often slower to respond to market shocks. In addition, those investors don’t have to face the same kind of pressures that individual investors deal with during COVID lockdowns and job losses.

Finsum:A recently published academic study conducted before and after the COVID pandemic found that individual investors sell ESG investments during economic downturns, while the demand for ESG remains robust among institutional investors.

Category: Wealth Management

Keywords: investors, ESG, covid, mutual funds

During a recent ThinkAdvisor FMG sponsored webcast titled “How to Drive and Close More Leads in 2023,” Samantha Russell, chief evangelist at FMG, and Susan Theder, chief marketing, and experience officer at the firm, outlined ways advisors can improve their lead generation efforts this year. Both Russell and Theder believe that holding webinars and other events is a great way to generate leads, but have found that only 23% of advisors are utilizing them. They recommend that advisors pick topics that go beyond financial issues as most people are not thinking about their financial issues all the time. For instance, Theder said that in the “most successful webinars I’ve seen, advisors do combine multiple different professions.” So, an advisor could talk about wellness and bring on a nutritionist, an estate planner, and a mental health professional and have a discussion that covers more than just the financial aspect. They also recommend picking topics that are timely. For instance, during February, tax issues are a great topic to discuss. They also suggest keeping the webinars short. Russell says “Between 30 and 60 minutes is really ideal for a webcast or webinar.” In terms of marketing your webinar, make sure you’re really specific with the title. Russell and Theder also recommend sending at least three promo emails and use Google Reviews if your firm allows it for SEO purposes.

Finsum:During a recent ThinkAdvisor webcast, Samantha Russell and Susan Theder of FMG recommend utilizing webinars to generate leads this year.

Capital Group, the parent company of American Funds, recently launched 12 active-passive model portfolios featuring Capital Group as the strategist. The models will be made up of American Funds' actively managed mutual funds and passively-managed ETFs from Vanguard, Schwab, and BlackRock. As the strategist, Capital Group will select the passive ETFs in each model and manage the allocations. The models are the latest in a series of active-passive model portfolios from Capital Group that include growth, growth and income, preservation and income, and retirement income strategies. They are designed to help advisors balance the demands of investment management with the need to scale their businesses and deepen client relationships. Capital Group's model portfolio business is an area of strategic focus for the firm. Its model portfolio business has more than tripled in assets under management since 2018. The new models bring the total number of model portfolios available nationally to 31. The new models comprise nine core models and three retirement-income-focused models. They include:

• Capital Group Active-Passive Global Growth Model
• Capital Group Active-Passive Growth Model
• Capital Group Active-Passive Moderate Growth Model
• Capital Group Active-Passive Growth and Income Model
• Capital Group Active-Passive Moderate Growth and Income Model
• Capital Group Active-Passive Conservative Growth and Income Model
• Capital Group Active-Passive Conservative Income and Growth Model
• Capital Group Active-Passive Conservative Income Model
• Capital Group Active-Passive Preservation Model
• Capital Group Active-Passive Retirement Income Model - Enhanced
• Capital Group Active-Passive Retirement Income Model - Moderate
• Capital Group Active-Passive Retirement Income Model - Conservative

Finsum:Capital Group added to its series of active-passive models with the launch of 12 new model portfolios, including nine core models and three retirement-income-focused models.

Direct indexing was one of the hottest topics in the financial services industry last year. The strategy has typically only been utilized by wealthy clients with complex portfolios, but that’s a mistake, according to Randy Bullard, global head of wealth at Charles River Development. Bullard, who was presenting along with Ben Hammer, a sales executive at Vanguard, at the ETF Exchange conference, pushed back on the notion that direct indexing is a niche product for select clients. He stated, “A direct indexing solution is uniquely designed to catch money in transition, and it’s suitable for all types of investors. That’s the transition the industry is starting to go through. Once you conquer the operational complexities of direct indexing, it becomes a broad market solution.” In fact, Hammer believes that it gives “advisors an additional edge with clients.” Hammer added that the volatility of 2022 provided the perfect environment to showcase the strengths of direct indexing. He stated, “Right now, most of the reason people are using direct indexing is for taxes, but we’re telling people not to fall in love with that after-tax return from last year. Volatility created an opportunity last year, but the opportunity hasn’t passed by. Every year there are some stocks that fall in an index.” Hammer is also seeing increasing adoption among accounting firms that work with advisors.

Finsum:While direct indexing has primarily been a tool for the wealthy, two panelists at the ETF Exchange conference believe that all investors can benefit from it, which gives advisors an edge with clients.

After a tough year in the equity markets, this year is shaping up to be a better year for investors as the S&P 500 is up over 7% through Monday’s close. This is happening amid numerous recession predictions across Wall Street. The rise in the stock market this year can be attributed to the growing sentiment that the worst is over when it comes to inflation and rising interest rates. In fact, a gauge of future volatility in the U.S. bond that tracks interest-rate turbulence is now showing an increasingly encouraging trend that is supporting the optimism in the market. The ICE BofA MOVE Index is extending a slide that started in October. It has now fallen to lows not seen since March when the Fed started its aggressive interest-rate increases. The index continued to fall after the Fed’s latest meeting on Wednesday, where according to billionaire investor Jeffrey Gundlach, Fed Chair Jerome Powell “didn't fight back in his speech Wednesday against market expectations that the Fed will soften its rate policy later this year.” The Fed raised benchmark borrowing costs by only 25 basis points, the smallest increase since last March. Over the past year, the trajectory of the S&P 500 has moved inversely to the MOVE index, showing the market's sensitivity to the interest-rate outlook.

Finsum:The stock market has rebounded this year as the ICE BofA MOVE Index, which measures bond volatility, has been sliding since October.

Morgan Stanley recently announced the launch of an exchange-traded fund platform with the listing of six Calvert ETFs on NYSE Arca, including an actively managed fixed-income ETF. The Calvert Ultra-Short Investment Grade ETF (CVSB) will focus on investment-grade debt issuers. Managers Eric Jesionowski and Brian S. Ellis seek to maximize income, to the extent consistent with the preservation of capital, through investment in short-term bonds and income-producing securities. Investors will gain diversified short-term fixed-income exposure to an actively managed portfolio of high-quality bonds of issuers that Calvert believes are demonstrating effective management of key ESG risks and opportunities. The other five ETFs include four indexed ESG equity strategies and an active ESG strategy. The funds include the Calvert US Large-Cap Diversity, Equity and Inclusion Index ETF (CDEI), the Calvert US Large-Cap Core Responsible Index ETF (CVLC), the Calvert International Responsible Index ETF (CVIE), the Calvert US-Mid Cap Core Responsible Index ETF (CVMC), and the Calvert US Select Equity ETF (CVSE). As part of the announcement, Dan Simkowitz, head of Morgan Stanley Investment Management, said the following in a statement. “This launch is the first step in MSIM’s development of a robust ETF platform that supports products across our businesses, asset classes, jurisdictions, and brands.”

Finsum:Morgan Stanley announced the launch of an ETF platform and the listing of six Calvert ETFs, including an actively managed ultra-short investment grade ETF.

Last month, fixed-income ETFs saw more inflows than equity ETFs. Elisabeth Kashner, director of global fund analytics at FactSet said in a phone interview with MarketWatch that “You don’t see that every day. That’s kind of a big deal.” According to Kashner, fixed-income ETFs brought in around $23.7 billion in January, while equity ETFs raked in a total of $22.9 billion. In 2022, rates rose quickly amid sky-high inflation. Due to this, investors embraced more “targeted products” than broad fixed-income funds, according to Kashner. This continued into January as the Schwab Short-Term U.S. Treasury ETF (SCHO) and the iShares 20+ Year Treasury Bond ETF (TLT0) were among the top 10 funds for inflows. Kashner noted that the Schwab Short-Term U.S. Treasury ETF “is what you buy defensively if you want to be in high-quality” fixed income “but you don’t want too much duration exposure,” due to concern about rising rates. She also said that the “iShares 20+ Year Treasury Bond ETF, which provides duration exposure, tends to attract investors worried about a recession.” Other fixed-income ETFs that saw strong inflows last month include the iShares JP Morgan USD Emerging Markets Bond ETF (EMB) and the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), according to FactSet data.

Finsum:Fixed-income ETF inflows outpaced equity ETF inflows last month as investors continued to embrace more targeted fixed-income products amid high inflation.