In today's interest rate climate, holding a significant cash reserve is a prudent strategy. While long-term investors may benefit from stock investments, individuals requiring immediate access to funds or building emergency savings find value in holding cash. With high-yield savings accounts offering rates of 5% or more, real returns on cash savings are attractive. However, for those seeking to optimize returns while maintaining liquidity, there are two fixed income ETFs that offer advantages. 

Two ETFs, iShares 0-3 Month Treasury Bond ETF (SGOV) and JPMorgan Ultra-Short Municipal Income ETF (JMST), offer different tax strategies to potentially enhance after-tax returns without significant additional risk.

Short-term Treasury bonds provide state tax exemption on interest earnings, making them appealing for residents of high-tax states, while municipal bonds offer federal tax exemption and may also be exempt from state and local taxes. Investors should assess the trade-offs between tax advantages and lower yields to determine the best fit for their financial situation.


Finsum; When accounting for tax advantages, fixed income ETFs could provide a more secure and efficient outlet for mitigating risk. 

Investors grappling with market uncertainty are exploring ways to manage risk effectively while staying invested; utilizing buffer strategies, which employ options to provide targeted downside protection, offers a solution by mitigating losses during market downturns while limiting upside potential.

 

 Accessing buffer strategies through ETFs simplifies the process, avoiding the complexities of managing options directly or the expense of structured notes. Buffer ETFs, managed by experienced professionals and offering intraday liquidity at a low expense ratio, present an accessible option for investors. 

 

Designed for long-term strategic allocation, these ETFs can be utilized by investors looking to reduce equity drawdown risk, seeking moderate growth, or exploring outcome-oriented strategies within their portfolios, thereby providing a flexible approach to risk management in uncertain markets.


Finsum: Buffer strategies seem to make the most sense when there is overall upside but potential for volatility, similar to our current macro landscape.

 

Commonwealth Financial Network has forged a strategic alliance with Succession Link, a specialized fintech platform focusing on M&A and succession planning, to revolutionize practice management. Through the integration of Succession Link's bespoke solution, advisors can now seamlessly identify compatible continuity and succession partners. 

 

The imperative for advisor succession planning is underscored by Cerulli Associates, forecasting the retirement of 100,000 advisors overseeing $10 trillion in client assets within the next decade.

 

Commonwealth's consolidated platform not only streamlines access to practices for sale but also furnishes advisors with valuation tools, fostering succession planning activity. Succession Link's suite of features, including compatibility scoring and advanced messaging functionalities, aligns with the overarching goal of empowering financial professionals to navigate succession challenges adeptly.


Finsum: Technology tools will be changing the game in advisor recruiting as demographic shifts begin to hit the industry.

 

Bonds and stocks were higher following the Federal Reserve’s decision to hold interest rates steady. The rally was a result of Fed Chair Powell reaffirming that rate cuts were still on track for later this year. He also added that the ‘policy rate is likely at its peak’. 

The dot-plot also showed that FOMC members are forecasting 3 rate cuts by the end of the year, which is in line with the market’s consensus and a reduction from their previous forecast of 4 rate cuts. Committee members also upped their forecast for GDP growth to 2.1% from 1.4%, while modestly lowering their forecast for the unemployment rate to below 4%. 

According to Fed futures, there is a 75% chance that the first rate cut will be at the June meeting. However, the larger message from Powell is that the Fed can afford to be patient given that the economy remains in a healthy place despite restrictive monetary conditions. 

Another catalyst for equities and fixed income was Powell’s comments on the balance sheet runoff. So far, the Fed has reduced its balance sheet by about $1.4 trillion since June 2022 by letting proceeds from maturing Treasuries and mortgage-backed securities roll off the balance sheet instead of being reinvested. Powell indicated that this round of quantitative tightening was nearing an end and that discussions were ongoing about when it would be ‘appropriate to slow the pace of the runoff fairly soon’.


Finsum: Stocks and bonds were higher following the Fed’s decision to hold rates steady. Two particular catalysts were Chair Powell’s affirmation that the Fed’s next move would be to cut rates and comments about slowing the pace of quantitative tightening.  

Apollo Global Management Inc. has launched a new private credit fund, initially offering no fees for the first year and halving fees for the subsequent year, with investments coming from Mubadala Investment Co. and other institutional investors. 

 

Structured as a business development company, it diverges from the norm by providing fee breaks, unlike many similar vehicles catering to retail and high net worth investors. Contributions from Mubadala and Apollo's affiliate amount to over $290 million, while the fund's assets total over $790 million, predominantly acquired through leverage. 

 

Named Middle Market Apollo Institutional Private Lending, the fund is an extension of the collaboration between Apollo and Mubadala, established in 2020, focusing on investments in US middle market companies, with a target allocation of 70% to 80% in loans. The fund's filing also stipulates a provision where Apollo would redistribute cash from sales or loan repayments to investors if it fails to double its investment commitments to $900 million within five years.


Finsum: Private credit could provide an uncorrelated return as macro uncertainty permeates markets.

Bond yields modestly rose following the February consumer price index (CPI) report which came in slightly hotter than expected. Overall, it confirms the status quo of the Fed continuing to hold rates ‘higher for longer’. Yields on the 10-year Treasury rose by 5.1 basis points to close at 4.16%, while the 2-Year note yield was up 5 basis points to close at 4.58%. 

 

The report showed that the CPI rose by 0.4% on a monthly basis and 3.2% annually. Economists were looking for a 0.4% monthly increase and 3.1% annual. While the headline figure was mostly in-line with expectations, Core CPI was hotter than expected at 3.8% vs 3.6% and 0.4% vs 0.3%. The largest contributors were energy which was up 2.6% and shelter at 0.4% which comprised 60% of the gain.

 

Based on recent comments by Chair Powell and other FOMC members, the Fed is unlikely to begin cutting unless inflation resumes dropping or there are signs of the labor market starting to crack. Current probabilities indicate that the Federal Reserve is likely to hold rates steady at the upcoming FOMC meeting, especially with no major economic data expected that could shift their thinking. 


 

Finsum: The February jobs report resulted in a slight rally for bonds as it increased the odds of a rate cut in June. Most strength was concentrated on the short-end of the curve.

 

Vanguard celebrated changes in its fixed income leadership during the closing of the stock market at the Nasdaq in New York, and it continues to be a leader in Active Bond ETFs.

 

 The recently launched Vanguard Core Bond ETF (VCRB) and Vanguard Core-Plus Bond ETF (VPLS), managed by experienced members of the Vanguard Fixed Income Group, have shown strong performance compared to their peers over the past decade. 

 

With growing demand for active fixed income ETFs, particularly evident in the success of Vanguard Ultra-Short Bond ETF (VUSB), investors are seeking strategies that can adapt to market changes, especially with anticipated rate cuts by the Federal Reserve in 2024. Both VCRB and VPLS offer potential solutions, boasting relatively low expense ratios and providing complementary options to Vanguard's existing fixed income lineup.


Finsum: Rate cuts are a key reason to consider moving your bond ETF exposure to a more active lens in 2024

While the Federal Reserve has been successful in lowering inflation over the past 21 months, it still remains uncomfortably high. The consumer price index (CPI) peaked at 9.1% in June 2022 and reached 3.1% in its last reading which remains above the Fed’s 2% target.

 

Equally relevant, many of the disinflationary impulses which drove the rate of inflation lower have subsided, while there are indications of nascent inflationary pressures budding. For markets, the implication is that the status quo prevails with the Federal Reserve holding rates at 5.50% since July of last year.

 

While bonds enjoyed a decent rally as the Fed moved from hiking to holding steady, volatility remains elevated due to the current uncertainty about inflation and Fed policy. As a result, the bulk of gains in fixed income proved to be fleeting. According to John Hanock, these conditions are ideal for active fixed income as managers will be able to take advantage of inefficiencies and dislocations caused by the current environment.

 

The firm believes that active managers will be able to outperform by overweighting quality, intermediate-term bonds, and defensive sectors. It also likes mortgage-backed securities (MBS) due to attractive yields without sacrificing quality. In contrast, it wants to underweight cyclical sectors and high-yield bonds given its concerns about a weakening economy in the second-half of the year. 


Finsum: Volatility has risen for fixed income ever since the outlook for inflation and Fed policy have gotten murkier. Here’s why John Hancock believes active fixed income is the ideal way for investors to take advantage of attractive yields. 

 

The Bureau of Labor Statistics reported that the US added 275,000 jobs in February which was slightly higher than expectations. However, the report indicated some softening in the labor market as job gains in January and December were revised lower by a collective 167,000, and the unemployment rate inched higher to 3.9%. 

 

It resulted in bonds moving higher as odds increased that the Fed would cut rates in June. Additionally, the number of hikes expected in 2024 also rose from 3 to 4. Most strength was concentrated on the short-end, which is more sensitive to Fed policy as yields on the 2-Year Treasury note declined by 10 basis points. There was much less movement on the long-end as the 10-year Treasury yield was lower by 3 basis points. Earlier this week, bonds also caught a bid as Chair Powell’s testimony to Congress was interpreted as being dovish. 

 

Overall, the jobs report perpetuates the status quo in terms of the Fed remaining data-dependent, while the path of the economy and inflation remain ambiguous. On one hand, wages and the labor market have defied skeptics who were anticipating a downturn. But there has been acute weakness in areas like manufacturing and services which have historically coincided with a weakening economy. 


Finsum: The February jobs report resulted in a slight rally for bonds as it increased the odds of a rate cut in June. Most strength was concentrated on the short end of the curve.

 

Managing investments can be overwhelming for advisors amidst their busy schedules, but model portfolios offer efficiency, diversification, and transparency, allowing advisors to focus more on their clients. Advisors have the option to create their own portfolios or use third-party models, with the former being more popular as it allows them to tailor investments while maintaining efficiency. 

 

The primary benefit of model portfolios is the quick and efficient implementation of advisors' best ideas, essential for business growth. While clients benefit from the advisors' expertise, there may be instances where they desire investments outside the model, requiring advisors to balance client preferences with their investment strategies. 

 

Overall, model portfolios streamline investment management, enabling advisors to concentrate on building strong client relationships and providing personalized financial guidance.


Finsum: Models not only meet the clients’ needs but they give more opportunities to develop a relationship with clients to better understand financial concerns. 

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