Alternative energy stocks have had a poor start to the year as the iShares Global Clean Energy ETF (ICLN) is down 15% YTD. A major component of the industry’s struggle is the poor performance of Tesla, which has been dealing with slowing sales and falling margins. Last week, the company announced that it would be restructuring and laying off 10% of its workforce. In the first quarter, the company had its first decline in vehicle deliveries, from 422,875 in last year’s Q1 to 386,810 this year.

Another is that overvalued parts of the market have moved lower as it’s increasingly clear that rates will remain elevated in the near term. Higher rates have a negative impact on auto sales and result in higher financing costs for green energy projects, leading to fewer installations. 

The larger story is that the transition to electric vehicles (EVs) and clean energy from fossil fuels and internal combustion engines is simply taking longer than expected.  EV demand growth seems to have stalled despite optimistic forecasts from many organizations that demand would steadily increase over the next decade. Meanwhile, the supply of EVs is set to meaningfully increase in the coming years. 

Finsum: Alternative energy stocks have been a laggard so far this year. Two of the major reasons are slowing demand for EVs and higher interest rates. 

Lincoln Financial Group unveils the 1 Year S&P 500 Dual Trigger account, a pioneering addition to fixed-indexed annuities, offering market adaptability and full downside protection. This innovative option addresses consumer concerns about inflation, investment losses, and market volatility, catering to the 61% of consumers seeking growth and protection in their investments. 

Senior vice president of Annuity Product Management, Daniel Herr, anticipates robust sales approaching $100 billion by 2025, with the introduction of the 1 Year S&P 500 10% Daily Risk Control Trigger expanding growth opportunities.

As millions of Americans transition into retirement annually, Lincoln Financial remains committed to safeguarding their financial futures through diverse investment strategies. Senior vice president of Retirement Solutions Distribution, Tim Seifert, emphasizes the importance of new crediting strategies in empowering retirement planning. 

Finsum: Index annuity offerings offer a great alternative to fixed income for those in or nearing retirement. 

According to Marcy Keckler, senior vice president of financial advice strategy at Ameriprise Financial, couples consulting a financial advisor tend to be more transparent about their finances, emphasizing the importance of selecting an advisor jointly. Keckler highlights the optimistic trend in couples' financial communication, as revealed by the Ameriprise Couples, Money & Retirement study, which surveyed over 1,500 American couples with substantial investable assets. 

The study indicates that the majority of couples trust each other on financial matters and share similar retirement goals. Keckler stresses the necessity for advisors to engage with both partners from the outset, ensuring a balanced relationship and effective financial planning.

Furthermore, the survey underscores the crucial role of advisors in addressing couples' concerns, such as providing support to family members and navigating retirement uncertainties. While most couples plan to retire simultaneously, the reality often diverges, requiring flexibility in retirement planning. The study's recommendations include open communication about financial objectives, resolving disagreements constructively, and collaborative selection of a financial advisor. Despite positive findings, challenges such as estate planning and financial transparency persist, highlighting the ongoing need for advisor assistance in fostering financial harmony among couples.

Finsum: The couple adds a different dynamic to the advisor client relationship and understanding their needs is fundamental, as more are seeking advisors in pairs. 

Direct indexing has witnessed a meteoric rise, with investments in direct indexes eclipsing $260 billion by the end of 2022. This method, involving the investment in individual securities comprising an index rather than the index fund itself, offers a distinctive set of advantages. 

It not only aims to closely replicate index performance but also holds the potential to significantly enhance tax efficiency. Furthermore, direct indexing provides a level of customization surpassing conventional index funds, making it increasingly attractive for those seeking tailored investment approaches. Direct indexing is gaining momentum, particularly due to its ability to mitigate risk concentration. 

Through this strategy, investors can manage individual components for tax purposes more effectively. By liquidating underperforming securities to offset taxable gains elsewhere in their portfolio, investors can potentially reduce tax liabilities and enhance tax efficiency. However, it's essential to navigate this strategy within the confines of the wash sale rule, which prohibits claiming a tax deduction for a sold security if a substantially identical one is purchased within 30 days before or after the sale.

Finsum: More needs to be said about direct indexing reducing risk in the portfolio by selecting and deselecting stocks based on their risk profile. 

Over the last few years, Wall Street banks have been losing market share to private lenders. Recently, they have been looking to win back business by serving as intermediaries between private lenders and companies. 

Previously, leveraged buyouts were financed by a combination of high-yield bonds and/or leveraged loans, arranged by a major bank or group of banks. And this accounted for nearly a third of investment banking revenue on Wall Street.

However, private lenders have muscled in on this line of business, forcing banks to adopt and come up with their own strategies to remain viable. Banks like Wells Fargo and Barclays have partnered with private credit funds to source deals, advise lenders, and help companies navigate the right steps to secure financing. 

Banks also have preexisting relationships with many privately held companies. According to Barclays, private credit funds have $430 billion in uninvested capital. Since the 2008 financial crisis, banks have had more stringent capital requirements. This means it is more desirable to advise and provide services to borrowers rather than take on additional balance sheet risk. 

It’s also helping Wall Street banks get through a dry period for deals due to high interest rates, impeding M&A activity. They are able to collect fees from lenders and borrowers. Typically, direct lenders will split fees with the banks that originate the deal, between 25 and 75 basis points. 

Finsum: As private lending has displaced a major chunk of Wall Street’s investment banking revenue, banks are adapting by serving as intermediaries for private lenders and borrowers.  

1. Rowe Price made an aggressive bet in 2020 by increasing exposure to equities in its target return funds, as equities were crashing due to the pandemic. At the time, the asset manager was criticized for this move; however, it’s paid off in spades, with the S&P 500 hitting new, all-time highs earlier this month. As a result of its success, T. Rowe Price now has the third-most assets in terms of target-date funds behind Fidelity and Vanguard. 

Further, T. Rowe Price has remained up to 98% invested in its target-date funds, which is higher than its peers. According to an analysis from Cerulli, retirees hold up to 55% of their portfolio in equities at T. Rowe Price. Compare this to Fidelity and Vanguard, where equity allocations are 38% and 30%, respectively. 

Despite its recent success, some continue to believe that T. Rowe Price’s target-date funds are taking on too much equity risk. According to Ron Surz, the president of Target Date Solutions, “80% of assets should be risk-free at retirement. Virtually all target date funds are way riskier than the theory they follow." However, some believe that higher allocations to equities are necessary given that lifespans are increasing, which increases the risk that retirees could outlive their savings. 

Finsum: T. Rowe Price is pursuing a more aggressive strategy than its peers when it comes to equity allocations in its target-date funds. So far, it’s worked well, but there are some skeptics.    

For investors, Tax Day often brings financial woes as they grapple with income from their portfolios. Over two decades, U.S. equity mutual funds have consistently yielded 7% of Net Asset Value in capital gains, irrespective of market performance. 

Direct Indexing emerges as a viable option, empowering investors to offset losses against gains within their portfolios or other income streams. Traditional portfolio management typically disregards tax implications, leading to hefty tax bills for investors, notably during market downturns like 2008.

Direct indexing offers a remedy, enabling investors to tailor their portfolios and strategically sell underperforming assets to counterbalance gains elsewhere. This method reduces turnover since the aim is to mirror an index with minimal trading. Even in bullish markets, avenues for loss mitigation exist, rendering direct indexing an attractive tax management strategy. By mirroring selected indexes, investors can curtail capital gains and potentially offset other income with net tax losses. 

Finsum: Alpha and tax efficiency should be thought of in a similar lens and shouldn’t be discounted by advisors. 

Amidst higher interest rates, achieving alpha and managing risk in corporate credit necessitates a nuanced approach. Josh Lohmeier of Franklin Templeton Fixed Income unveils a dynamic portfolio construction method adaptable to diverse investor profiles and market conditions. 

In the current interest rate landscape, sophisticated techniques are essential for capturing alpha with improved downside protection. Alongside meticulous bottom-up security selection, a systematic quantitative portfolio construction process can potentially yield consistent excess returns uncorrelated with peer benchmarks. 

By segmenting the opportunity set based on volatility and strategically positioning along the yield curve, investors can optimize risk allocation and enhance portfolio returns. This adaptable portfolio construction framework offers a repeatable process with consistently positive outcomes, emphasizing the importance of diversification across managers and fixed income portfolios.

Finsum: Quantitative approaches can deliver a more resilient portfolio in times of increased volatility.

Opting to switch broker dealers is typically a last-resort decision, stirring discomfort among advisors. The mere contemplation of change signifies a threshold of considerable discomfort. There are various catalysts for this discomfort, with the top three reasons for advisors to consider such a move descending as follows:

1. Advisors increasingly require practice management and marketing aid from broker/dealers as they expand their practices and seek to optimize efficiency.
2. Advisors prioritize broker/dealers offering innovative technology solutions such as electronic signatures and paperless office systems.
3. Advisors explore broker/dealers offering higher payouts, lower expenses, and more favorable administrative fees to maximize profitability.

Despite the challenges, the landscape of over 500 Independent Broker/Dealers presents ample opportunities for advisors seeking change, with the potential for greener pastures elsewhere.

Finsum: Tech advancements are offering new advisors a plethora of reasons to consider a transition because they can improve both efficiency and client relationships. 

There has been widespread adoption of separately managed accounts starting in the mid  2000s. The rationale for managing fixed income assets in this manner remains pertinent today: transparency, flexibility, transaction cost management, and active management are paramount in fixed-income investing. 

SMAs offer tailored portfolio management to meet clients’ fixed-income objectives, including tax management, income production, and specific investment restrictions, setting them apart from pooled vehicles like mutual funds and ETFs. The growth in SMAs for fixed income has been remarkable, with assets in SMA municipal fixed-income investments expanding from $100 billion in 2008 to $718 billion by Q2 2023, according to Citi Research. 

The advantages of SMAs, such as enhanced customization and efficiency, have fueled their increasing adoption by investors seeking precise control and personalized solutions in managing their fixed-income portfolios.

Finsum: Tailored financial products deliver a more personalized client experience and SMAs provide an avenue to improved relationships.