Displaying items by tag: rates

While bonds are generally known for their stability, 2022 marked a deviance from the norm. The question for advisors is, how should they approach 2023? Mariam Kamshad, head of portfolio strategy for Goldman Sachs personal financial management, and Guido Petrelli, CEO, and founder of Merlin Investor spoke to SmartAsset to provide some guidance. First advisors should expect a return to the norm. Kamshad said 2022 was an unusually bad environment for bonds with the Federal Reserve raising rates to a 15-year high. She believes that's unlikely to repeat and expects both yields and capital gains returns to stabilize. Second, advisors should pay attention to inflation and government bonds. Kamshad believes that inflation is still the biggest issue in the economy and expects it to continue slowing in 2023, which would likely slow interest rates. Her team considers duration risk a better bet than credit risk. Kamshad's team also recommends investors consider government bonds. The team expects intermediate Treasurys to outperform cash. They also expect municipal bonds to pick back up. Petrelli recommends following the unemployment rate and the quit rate as they are “good metrics for the strength of the economy overall and a window into where bonds are headed.” He believes a potential recession is one of the biggest questions facing the bond market. In a recession, Petrelli expects investors to favor short-term bonds.

Finsum:According to two portfolio analysts, advisors should expect a return to the norm for bonds, but they should also keep an eye on inflation, government bonds, and the jobs report.

According to industry group Nareit, REITs are well-positioned to navigate economic and market uncertainty in 2023 due to strong operational performance and balance sheets. As part of their 2023 REIT Outlook, the firm wrote, “despite economic headwinds and weakness in valuations, equity REITs have proven to be quite resilient from an operational perspective, and it is clear that REITs are well-positioned for ongoing economic uncertainty in 2023.” The firm noted that data from the Nareit T-Tracker in the third quarter of 2022 highlighted solid year-over-year growth in funds from operations (FFO), net operating income (NOI), and same-store NOI. Quarterly FFO increased to $19.9 billion in the third quarter, a 14.9% increase from a year ago and an all-time high. While the pandemic took a toll on the operational performance of equity REITs, there’s no question that it has recovered and surpassed pre-pandemic levels. Nareit also noted how REITs historically perform during and after a recession. For example, REITs have historically outperformed private real estate during a recession and in the four quarters after a recession. REITs have also historically outperformed their equity market counterpart before, during, and after recessions.

Finsum:Based on Nareit's 2023 outlook, REITs are well-positioned to navigate market uncertainty and a potential recession due to strong operational performance.

Over the last few years, the housing market has clearly been a sellers’ market, with many buyers missing out on their dream homes. But that may be changing as the market starts to cool off. In fact, 2023 could mark a turning point according to some real estate analysts. For instance, Danielle Hale, chief economist for Realtor.com, recently wrote in her housing forecast, that “there will be more homes for sale, homes will likely take longer to sell, and buyers will not face the extreme competition that was commonplace over the past few years.” Matthew Speakman, senior economist for Zillow told MarketWatch in an email, that “competition has lessened and negotiating power is flowing from sellers to buyers. This means that in many cases, buyers don’t have to settle for the first house they can win a bid on, and inspection and finance contingencies are back on the table.” In addition, Fannie Mae, Freddie Mac, the National Association of Realtors, and the Mortgage Bankers Association all forecast some type of decline in mortgage rates next year, which would make it more affordable for buyers to secure mortgages. However, this doesn’t mean it will be a buyers’ market next year. Lisa Sturtevant, the chief economist for Bright MLS, warns that “even if buyers have more negotiating power than they had in 2021, it is still very much a seller’s market.”

Finsum:While 2023 is expected to be a better year for real estate buyers due to more inventory, less competition, and lower mortgage rates, it will still likely be a sellers’ market.

Morningstar recently announced that it has launched an Annuity Intelligence Center for advisors to compare and manage annuities for their clients. Sales of annuities have been booming due to higher interest rates and increased demand for retirement income. The Annuity Intelligence Center aims to simplify annuity sales and management for advisors by offering a comparison tool, educational material, and product accessibility. The platform is a partnership between Morningstar and Luma Financial Technologies, an Ohio-based fintech company with a platform for broker-dealer firms to buy and sell annuities, long-term investment options issued by insurance companies, and alternative investments. The Annuity Intelligence Center is designed for retail annuity sales and management but does not include in-plan annuities for workplace-sponsored plans. While retail annuity sales have been flourishing, in-plan annuity sales have been lagging. Jeff Schwantz, global head of channel partnerships at Morningstar, said the following in a press release, “Assets in annuities are climbing, and while these vehicles are growing in popularity, the annuity marketplace remains opaque, and advisers serving investors have difficulty evaluating their options.”

Finsum:Morningstar is looking to take advantage of a booming retail annuity market with the launch of a platform for advisors to compare and manage annuities for their clients.

The private REIT market was recently rocked by the decision of Blackstone and Starwood, which manage two of the nation's largest private REITs, to limit and prorate investors' repurchase requests because they exceeded redemption restrictions. Private REITs are real estate investment trusts that are exempt from SEC registration and whose shares do not trade on national stock exchanges. While the private REIT market flourished during the low interest-rate era between 2017 and 2021, the expectation that interest rates will continue to rise could make it difficult for these private funds to perform well in the future. That and a perceived gap between the performance of nontraded private REITs and public REITs led to a surge in investor redemptions for Blackstone and Starwood. Both firms are trying to shore up their funds’ liquidity through redemption restrictions. The Blackstone Real Estate Income Trust (BREIT), which has $125 billion in assets under management, announced the closing of redemptions for this quarter in a letter to shareholders last week. The announcement from the Starwood Real Estate Income Trust (SREIT), which is valued at about $14.6 billion, came more recently over the weekend. 

Finsum:Rising interest rates led to a surge in investor redemptions for private REITs, resulting in Blackstone and Starwood restricting redemptions this quarter.