Displaying items by tag: risk

BlackRock has introduced a 'buffer' ETF, the iShares Large Cap Max Buffer Jun ETF (ticker: MAXJ), designed to offer a 100% downside hedge for cautious investors. This ETF tracks the S&P 500 using options with an upside cap, aiming to protect against losses for about a year.

 Buffer ETFs are beneficial as they help maximize returns while providing downside protection during volatile market periods. 

They are especially attractive to investors wary of market volatility and economic uncertainties, such as inflation and potential interest rate hikes. BlackRock's extensive reach and marketing capabilities could help it catch up with competitors in this space.

Finsum: BlackRock’s pioneering in quantitative strategies puts them in a good position to maximize the abilities of buffer ETFs

Buffer ETFs have grown rapidly since 2018, now totaling 159 with nearly $38 billion in assets. They attract financial advisors by offering downside protection for the first 10% to 15% of losses while allowing market gains, making them popular during volatile periods like 2022.

Experts point out that these ETFs are easier to rebalance and offer daily liquidity compared to structured notes and annuities. However, buffer ETFs cap potential gains, limiting profits when the market rises, and their performance can be affected by market timing.

They typically have a defined 12-month outcome period, and buying or selling mid-series can negate initial protections and caps. Despite their benefits, buffer ETFs have higher fees and might not pay dividends, making them less suitable for long-term investors compared to direct equity investments.

Finsum: Sometimes it’s worth paying higher fees or sacrificing a little alpha to hedge some volatility

Asset managers believe the next two years might be ideal for investing in private real estate, despite recent market challenges. Clients are increasingly interested in risk-adjusted returns, prompting RIAs to explore private real estate opportunities. 

Core real estate, with its stable returns and lower leverage, is seen as favorable. Despite last year's focus on falling property valuations, sentiment is shifting as investors seek to time market entry. 

Private real estate offers attractive returns but requires patience due to slow cycles and the need for market stability. Potential buyers should be aware that the price gap between buyers and sellers remains a challenge.

Finsum: The old adage of buying the dip could be especially in play for this current moment in real estate.

The nature of being a financial advisor has shifted significantly over the past decade. It’s gone from being centered around selecting investments and managing portfolios to financial planning and client service. Model portfolios have been ascending along with this evolution and are forecast to exceed $1 trillion in assets over the next decade.

According to surveys, clients invested in model portfolios are more likely to have higher levels of trust with their financial advisors and believe that volatility is an opportunity to grow assets. Additionally, they are more likely to be interested in other services offered by an advisor. They can also help in terms of aligning the interests of advisors, the firm, and clients. They also free up time and energy for advisors to spend on factors that ultimately drive success for advisors, like client service and prospecting. 

Another benefit is that model portfolios provide an extra layer of due diligence, with 77% of advisors saying that they help with managing risk. In essence, it gives clients access to a higher quality of investment management and a more comprehensive relationship with an advisor.

Models also mean that advisors’ services become more scalable, enabling growth and expansion. In recent years, models have expanded to include offerings from third parties and a wider array strategies, which means there are possibilities for endless customization to fit clients’ unique needs and goals.

Finsum: Model portfolios bring the promise of a win-win for clients and advisors. Clients invested in model portfolios report higher levels of confidence with their advisor and don’t fear volatility. For advisors, they offer the ability to decrease time spent on investment management and focus more on client service and prospecting.

Active bond funds are essential for a well-diversified investment portfolio, providing income and cushioning against market downturns. In 2022, bonds demonstrated their resilience, with most fixed income categories performing better than the broader stock market. However, bond values are inversely related to interest rate changes, so with rates projected to rise, focusing on short- to intermediate-term bond ETFs is advisable. 

Active bond ETFs, such as Pimco’s Active Bond ETF (BOND), offer diversified exposure and professional management, helping investors navigate volatile markets. If you want to shorten the duration Pimco’s Enhanced Short Matruaity Active ESG ETF (EMNT) might provide a more robust alternative with ESG exposure. 

Despite higher costs, active management can be beneficial, especially in uncertain economic conditions, making these funds a strategic addition to long-term investment portfolios.

Finsum: Duration risk is especially important in this current climate and because interest rates could fall quickly in the next year depending on the Fed’s decisions.