Bonds: Total Market
Switching to a new broker-dealer is often a complicated process, but finding the right partner can significantly improve your business and client service. Legal guidance is essential to avoid potential pitfalls, such as contractual issues or ownership disputes over client relationships.
Developing a comprehensive transition plan will help organize client accounts and ensure the process runs smoothly. Engaging your team early allows for shared responsibility and clear goals throughout the transition.
It’s also a good time to reassess your client base, streamlining relationships and services to align with your current practice. Finally, preparing client data properly and crafting a clear communication plan can help ensure a smooth and positive transition for everyone involved.
Finsum: Data, in particular, can be critical with the advances in information and technology.
Around two-thirds of active bond funds outperformed their average passive peers during the 12-month period ending June 30, according to Morningstar's latest Active/Passive Barometer. The report, which examines the performance of over 8,000 funds across various categories, highlighted that intermediate core bond funds led the way, beating passive funds 72% of the time.
These active bond funds benefitted from narrowing credit spreads and inflation that kept interest rate cuts on hold. However, over a 10- and 15-year horizon, only 45.5% and 15.9% of these funds outperformed, respectively.
Additionally, actively managed real estate funds outperformed their passive counterparts 66% of the time over the same 12 months, with U.S. and global real estate funds seeing strong short-term success.
As the Federal Reserve signals more rate cuts, long-term municipal bonds (munis) are becoming increasingly attractive due to their competitive yields, tax benefits, and potential for price appreciation. Historically, long-term munis tend to outperform when the Fed shifts from a hawkish to a dovish stance, benefiting from falling interest rates.
These bonds also offer superior credit quality and often deliver higher tax-equivalent yields compared to taxable bonds, making them a strong alternative to Treasuries. With their longer durations, munis are particularly sensitive to rate changes, allowing for significant price gains in a falling rate environment.
Moreover, the increased issuance of municipal bonds this year has created a favorable buying opportunity, especially as tax reforms and higher marginal rates could further boost demand for tax-exempt investments.
Finsum: For investors looking to capitalize on rate cuts, long-term munis offer a compelling mix of yield, tax advantages, and credit stability
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Advisors today face increasing challenges in helping clients achieve and maintain financial independence. With high U.S. stock valuations predicting lower future returns, and bond yields offering minimal real returns, portfolio strategies need to evolve.
Clients are also grappling with rising living costs, longer life spans, and elevated housing prices, creating greater financial strain. Factor investing offers a solution, selecting securities based on traits like momentum, quality, and low volatility, which have historically outperformed.
These strategies can be implemented cost-effectively through ETFs and optimized for tax efficiency within households. Although no factor guarantees success in every market, a diversified approach to factor investing provides a long-term opportunity for outperformance.
Finsum: Factor investing is robust proven strategy that can bring legitacy to new advisors or those looking to expand client adoption.
Goldman Sachs projects that the stock market could see a 15% rise by year-end if mega-cap tech stocks continue their strong performance. The bank argues that tech stocks are not currently in a bubble, as investors are focused on companies with profitable growth rather than speculative ones.
Goldman’s David Kostin notes that while long-term growth expectations for the S&P 500 are slightly above average, they remain well below levels seen during previous market bubbles. Despite concerns about the high concentration in a few tech giants, Goldman believes this is justified given their rapid growth compared to other S&P 500 companies.
The valuation spread between market-cap-weighted and equal-weighted S&P 500 indexes does not suggest bubble conditions, staying below historical extremes.
Finsum: We would look into more traditional measures like price to earning ratios if we are concerned about a bubble forming, rather than just long run growth.
Apollo Global Management Inc. is exploring the possibility of establishing a trading desk to buy and sell direct loans in the $1.7 trillion private credit market, which is typically illiquid. While the plans are still preliminary and could be abandoned, Apollo’s interest follows similar moves by other firms like Golub Capital and JPMorgan Chase.
These firms are actively trading private loans, although such transactions remain rare due to lenders' preference to hold debt until maturity. Concerns exist that increased trading could undermine the benefits of direct lending, such as privacy, convenience, and price stability.
However, secondary trading could be attractive to investors looking to enhance liquidity or reposition their portfolios. As the private credit market evolves, trading direct loans might become more common, especially for distressed assets.
Finsum: As a key figure in the space its important to keep an eye on the changes Apollo is making in private credit.