According to a new PwC survey, eight in 10 investors plan to increase their exposure to ESG strategies over the next two years. PwC’s Asset and Wealth Management Survey, which was part of its Asset and Wealth Management Revolution 2022 report, is a global survey of asset managers and institutional investors. The survey sample included 250 respondents, accounting for a combined asset under management of approximately $50 trillion. The survey also revealed that asset managers are expected to increase their ESG-related assets to $33.9 trillion by 2026, up from $18.4 trillion in 2021. ESG-related assets are expected to grow at a much faster pace than the asset and wealth management market as a whole. ESG assets in the US are expected to more than double from $4.5 trillion in 2021 to $10.5 trillion in 2026, while Europe ESG assets would increase 53% to $19.6 trillion. However, as demand for ESG products rapidly increases, 30% of investors say it’s a struggle to find attractive and adequate ESG opportunities due to a lack of consistent and transparent standards.

Finsum: A recent PWC survey revealed that 80% of investors are expected to increase their exposure to ESG over the next two years, while assets in ESG products are predicted to hit $33.9 trillion by 2026.

When it comes to direct indexing, a little daylight seems to be peeking in.

As investors, young and old, flock to ETFs, you might say direct indexing’s keeping an eye out for its lane, according to blomberg.com.

Two hands on the wheel, of course.

Questions surface about whether investors have an inclination to dive into direct indexing in light of the burgeoning attraction to ETFs, notes new research from Schwab.

If you have an appetite for index funds and ETFs, but greater control over fund holdings and the possibility to outperform, direct indexing just might float your boat, according to schwab.com.

By paring down costs while stepping up access among investors to different segments of the market, index funds and ETFs have put an entirely new face on investing. That said, when it comes to direct investing, contrary to performance historically, make way for the fly in the ointment: when it comes to control over the fund’s individual holdings, control – perhaps of any sort – is nonexistent.

However, times, it seems, have changed. Limited, back in the day, to institutional and high-net-worth investors, today, direct indexing’s available to a wider range of investors. Why? Technological strides, which have coaxed down investment minimums.

Direct indexing, of course, is surging in popularity, according to barrons.com. While Fidelity, Schwab and Vanguard have initiated direct indexing products over the past year or so, direct indexing’s leveraged by only 12% of advisors. Not to pile on – but piling on – a survey showed, when it comes to direct indexing, half of advisors have too clue what it is. 

Um, someone say Wikepedia?

In the uniquely entitled category ‘there’s a first time for everything’, the Financial Industry Regulatory Authority fined a former registered rep $5,000 and issued a six-month suspension, according to thinkadvisor.com. The action was its first disciplinary moved linked to Regulation and Best Interest.

In a pair of knuckle raps, Charles V. Malico not only willfully violated Reg BI’s Care Obligation but FINRA Rule 2010 as well “by recommending a series of transactions in the account of one retail customer that was excessive in light of the customer’s investment profile and therefore was not in that customer’s best interest,” as laid out by FINRA’s order. This occurred from July 2020 through November 2021.

This action represents the regulator’s first Reg BI-related fine, confirmed a FINRA spokesperson. It came on the heels of a review of an enforcement of an arbitration claim.

“Malico frequently recommended that Customer A buy and then sell a security, only to repurchase the same security weeks or even days later,” the settlement states, according to investmmentnews.com.

The previous suitability standard -- governing the conduct of brokers with customers -- was supplanted by Reg Bi.  

It might be a bit brisk north of the border, but at least some fixed income ETFs seem to be hot in Canada, according to moneysense.ca.

In the aftermath of around 20 years of essentially solid returns, as interest rates nudge yields up and drive down prices, bond portfolios are absorbing some body blows. the iShares Core Canadian Universe Bond Index ETF (XBB) – which missed the panel’s picks of best fixed income ETFs for portfolios – still dispenses broad exposure to investment-grade Canadian bonds.

“I’m not committed to bonds at all,” says panellist Yves Rebetez. “People are now seeing the truth in the descriptive ‘return-free risk’ that some have been pointing to for a while. This ‘return-free risk’ is a tongue-in-cheek play on that. Who wants to invest in risk, void of potential returns?”

Opting for cost efficient funds like ETFs in Canada and elsewhere, the variety of them is, well, substantial, according to wealthawesome.com. As last year wound down, there were 1,177 Canadian listed ETFs in Canada.

Canadian ETFS are available in every shape and size. Among that wide range of options, it’s key to buckle down on the best funds.

Most portfolios commonly carry fixed income or bond ETFs – particularly if risk doesn’t float the boast of those investors who are most risk repellant.

Want to talk logic? For a second? A combination of income exchange-traded funds are most, well, logical for a substantial chunk of investors.

Sure, among investors, passive investment strategies still can yield exposure to broad market data, according to wellington.com. 

Yet, for skilled active management, the new regime today, which is comprised of inflation and interest rates pointing north as well as an acceleration of dispersion across fixed income sectors and regions, is custom made for skilled active management, the site continued.

Considering that, among investors, the time now be just right to opportunistically position their portfolios.

Now, given the rebound of inflation’s largely a global matter, you might want to put the cookie cutter away. In Europe, inflation’s being fueled by catalysts that vary from the issue in the U.S. Distinct structural headwinds face each region – a divergence that, for investors, sparks possible opportunities.

In Europe, well, climbing inflation’s stems mainly from energy and food prices unfavorably tipping the scale. The spiraling price tags of these staples have been absorbed by businesses and consumers. Meantime, In the U.S., demand, more so, has been the impetus of recent pressures driven by inflation.

Their respective fixed income markets have priced in the duo threats of recession and sources of inflation in the euro area opposed to the U.S.

The brunt of the changes in interest rates potentially can be minimized through the active management of sensitivity to interest rates with duration positioning, according to gsam.com. Blunting sensitivity to rates changes could usher in positive returns in any rate environment.

It’s no secret that many active fund managers fail to beat their benchmarks over the long term, but investor trading activity in those funds is even worse. A Morningstar examination of investor returns in the largest active bond funds revealed self-destructive behavior by investors. According to Morningstar, investors in the 20 largest Intermediate Core Plus Bond funds, which have 10-year records, were so bad over the last ten years that they gave up more return than the Bloomberg US Aggregate index delivered. The average fund returned 2.11% annualized for the last ten years ending in August, while the Bloomberg US Aggregate index returned 1.35% return. Surprisingly, every single one of the 20 funds outperformed the index, but investors were not able to take advantage of this outperformance. Investors lost 75% of the average return the funds delivered, ending up with an 0.53% annualized return. Poor timing can account for the dismal returns for investors. Between 2021 and 2022, investors added $91 billion to the category looking for extra yield over the aggregate index. Unfortunately, this coincided with inflation which led to intermediate-term bond prices falling.

Finsum: Investors poured money into active fixed-income funds at the worst possible time, leading to massive underperformance compared to the funds.

Model portfolios? They’re making their presence felt.

Their use by advisors is one of the most significant factors now reshaping the financial product distribution terrain, according to broadridge.com.

Gaining a firm handle not only how – but why – advisors are leveraging the model portfolios yields insight into the idyllic sales approach required to lasso model driven fund and ETF assets. What’s more, its effect on the distribution strategies and subsequent profitability generated by asset managers talks with a big stick.

Within the $6.5 trillion investment advisory solutions industry, these types of models perpetually have played a key role, according to MMI.

Working from scratch, advisors can build each client portfolio in their book of business.  Not only that, using a more standardized approach, advisors, by tapping into broker/deal programs like rep-as-portfolio, can take their own models and run with them.

It doesn’t stop there. Advisors -- particularly IBDs and RIAs – have the leeway to hang onto discretion and executive models through emerging model marketplaces. 

The reason for their popularity are apparent, according to troweprice.com. Not only can they abet your ability to streamline your business, you also can pare risk. Another key attribute: they avail you the opportunity to devote more time to clients.

However, performance can vary wildly depending on the model, which can make discovering the idea fit you’re your client less than easy pickings.  

Exchange traded funds are the bomb as they play an "expanded role in portfolio construction," according to a recently released report by State Global Markets, the survey sponsor, reported pionlne.com.

Participating in the survey were 700 global institutional investors responsible for asset allocation decisions at pension funds, wealth managers, asset managers, endowments, foundations and sovereign wealth funds.

In fixed income, the outlook -- short term – is dominated by unrelenting inflation and upticks in central bank interest rates, according to ssga.com At the same time, however, investor implementation and fixed income allocations management are influenced by longer term, structural forces.   

And talk about a financial trend to swoon for. In fixed income ETFs, assets under management ballooned from $574 billion in 2017 to $1.28 trillion in 2021. Over the same time period, there was a rapid acceleration of in the number of funds -- from 278 to nearly 500.

The role of ETFs in asset allocation’s expanding to non-core sectors, the 2022 survey shows, according to the site. One example: 62% of investors who are increasing exposure to high-yield corporate credit over the next 12 months say it is likely they will use ETFs to do so, and 53% say the same for emerging-market debt.

Based on research released Monday, Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, believes that small-cap stocks have already priced in a recession and are currently de-risked. Calvasina noted that small-cap performance has been stable since January and is in a narrow trading range in comparison to large-caps. She stated, “While this doesn’t necessarily tell us that a bottom in the broader U.S. equity market is imminent, it does tell us that the equity market is behaving rationally. It has been our view for quite some time that small-caps, which underperformed large-cap dramatically in 2021, have already been de-risked and are baking in a recession.” She also pointed out the sectors that tend to perform best in the period leading up to the final rate increase in a rate-hike cycle. These include defensive sectors such as consumer staples, energy, financials, healthcare, and utilities. Calvasina wrote the sectors “tended to perform the best within the major index in the six-, three- and one-month periods before the final hikes in the past four Fed tightening cycles.”

Finsum: In a recent research note, Head RBC equity strategist Lori Calvasina believes that stable returns of small-cap stocks are due to recessionary factors already priced in.

While direct index may be a hot industry topic, not all advisors are buying in. In fact, most clients don’t even know what direct indexing is. Based on comments from a panel of advisors and tech executives at the WealthManagement.com Industry Awards earlier this month, clients aren’t asking for direct indexing and most have never heard of the term. While financial giants such as Goldman Sachs, Fidelity, Vanguard, Pershing, Schwab, and Franklin Templeton are acquiring firms and building out direct index offerings, the strategy has not made its way into client and advisor discussions. Megan Meade, CEO of The Pacific Financial Group told WealthManagement.com, “They’re just not that sophisticated of investors. They don’t have the assets for that. Nor do they need that level of tax efficiency.” Adding to the uncertainty are tech executives who are also unsure about the current value of direct indexing. J. Helen Yang, founder and CEO of Andes Wealth Technologies told the publication, “I am very skeptical about direct indexing as a way to offer personalization.”

Finsum: A recent panel of advisors and tech executives revealed that many haven’t bought into direct indexing yet, while most clients don’t even know what it is.