AllianceBernstein is moving forward with the development of two new ETF products and they are meeting the demands of the market. There has been a sharp uptick in active management particularly in the bond ETF segment in the post-pandemic environment. The predominant view is that managers are better suited at picking winners with macro-flare proving so effective. The two portfolios they are launching are coming in an ultra-short income offering which will have a combination of government and investment grade corporate debt. As well as a tax-aware short-duration ETF. There has also been a shift towards shorter duration bond funds as a response to a rise in interest rate risk.

Finsum: With the Fed stomping on the gas pedal, if inflation comes under control quickly longer duration debt could be under-priced.

Very few investment trends have caught on as rapidly as model portfolios which have seen widespread adoption, but this could be lowering asset flexibility. Model portfolios seek a variety of metrics for assets to be added to the fund. Assets may be excluded for categorical or qualifying reasons which can lead to a lack of adoption and lower returns. The selection bias in models leaves meat on the bone for investors and can keep them from getting exposure to products like covered calls or other investments.

Finsum: Model portfolios have their place, but they could create an inefficiency where some products are given their proper value. 

Financial companies are rushing to deliver low initial investment direct indexing products to investors, but is DI here to stay? The benefits of custom indexing are obvious: It gives ESG investors an opportunity to punish the greenwashers of their own volition, and optimizers a chance to gain tax alpha easily. However, this isn’t free; investors usually pay much higher fees than traditional ESG funds and the minimum investments are usually high. For the few funds without high initial investments, investors get very little if any flexibility in dropping assets from their portfolio. Now they aren’t an ‘active- wolf’ in sheep's clothing, but those are real drawbacks investors should consider.  In the long run, we will see a combination of lower fees with more accessibility as competitors enter the market, and direct indexing could be here to stay.  

Finsum: Direct indexing isn’t for everyone…for now, but as fees shrink, and minimums drop more investors should consider adding them to their portfolio. 

The market is seeing some of the highest volatility since the pandemic and before that, you have to go back to the taper tantrum, but how should investors respond? While the most obvious answer is to ‘buy the dip’, the question remains where. Investors should look to industries whose fundamentals haven’t shifted in the most recent months or are less susceptible to the ongoing volatility shifts. This value tilt means leaning towards financials and commodities. Moreover, investors should steer clear of those exactly susceptible to current volatility spikes. Technology and emerging markets are easy stay-aways because inflationary pressures are going to hurt growth stocks and supply constraints will bottle up developing economies for the foreseeable future.

Finsum: More advanced hedging strategies should be considered in equity markets given the volatility, but still tilt toward value.

State Street launched a new fund LQIG which started trading on May 12, an effort to give investors exposure to liquid bonds with high traceability. The market is rife with turmoil, and investors are looking to different fixed-income products to provide an inflation-beating yield and relatively liquid assets. The fund seeks exposure to 400 investment-grade corporate bonds denominated in dollars. These differ from most fixed-income funds which are designed to give broader market exposure that doesn’t prioritize traceability. The high traceability comes with lower bid-ask spreads as well as more transparency into their holding's real-time valuations.

Finsum: Investment-grade corporate debt is looking relatively more attractive with market volatility at such highs.