Direct indexing is in the midst of a boom due to increasing awareness of its benefits from investors and adoption by advisors. Some of the major benefits for clients are increased tax efficiency and more personalization while remaining diversified with low costs. For advisors, it’s an opportunity to add value to clients and provide more specialized services. Overall, it’s estimated that direct indexing can add between 30 and 50 basis points in annual returns.

However, most continue to think of direct indexing in terms of equities, but the technology can also be applied to fixed income. With stocks, most direct indexing strategies are based on re-creating an index within a separately managed account with some adjustments to better fit a client’s financial needs and goals.

In contrast on the fixed income side, indices are not replicated, but it can provide more control, flexibility, and personalization. They can also find increased tax efficiency through regular portfolio scans just like with equities to harvest tax losses which can be used to offset capital gains in other parts of the portfolio. Another benefit is that investors can fine-tune their fixed income portfolios and optimize for different characteristics such as duration, credit risk, income, or geography. 

Finsum: Direct indexing is in the midst of a boom. While many are now familiar with its benefit for equities, it can also be used with fixed income. 

A skirmish over fees preceded the long-awaited SEC approval of Bitcoin ETFs, which finally arrived on January 10th. Just days before the historic green light, applicants, including BlackRock and ARK, amended their proposals, slashing or eliminating management fees to woo early investors. This sudden fee competition presents a unique opportunity, favoring those who invest in these ETFs first.

BlackRock's ETF, for instance, carries a 0.30% annual fee, preceded by a mere 0.20% introductory rate for the first year or $5 billion in assets under management (AUM). ARK amended their application, indicating they would waive their 0.25% fee during an introductory 6-month period for the first $1 billion in AUM. These pricing moves reflect the intense competition brewing in the nascent Bitcoin ETF space.

Why the sudden price drop? One answer lies in the inherent simplicity of Bitcoin ETFs. Unlike traditional, diversified index funds with hundreds of securities, these products hold primarily just one asset – Bitcoin. This reduces complexity, leaving ample room for fee compression. Consequently, fees are poised to become a differentiator, influencing investor decisions in this uncharted territory.

However, navigating this new landscape requires caution. Investors should closely scrutinize underlying investment structures and track records of issuers. Due diligence is paramount when navigating this rapidly evolving space.

Finsum: The era of cryptocurrency ETFs begins with a race to lower fees, with many initial issuers slashing fees during introductory periods.

A recent report on real estate holdings of institutional investors revealed that while their allocation to the asset class remained level from 2022 to 2023, the allocation in the preceding decade increased by 190 basis points, a jump of 20%.

Historical data underscores the potential benefits of private real estate. A whitepaper from TIAA—a respected organization established by Andrew Carnegie in 1918 to support teacher retirements—highlights the performance of private real estate over a two-decade span. From 2000 to 2020, private real estate exhibited a very low correlation with stocks, bonds, and listed REITs. This suggests that incorporating private real estate into a portfolio could enhance diversification, which is crucial for managing risk.

Moreover, private real estate has traditionally been an effective hedge against inflation. As inflation erodes the purchasing power of money, the tangible asset class of real estate often sees its value and the income it generates keep pace with or exceed inflation rates, thereby preserving the real value of an investor's income.

For financial advisors, the strategic inclusion of private real estate in client portfolios can provide a twofold advantage: diversification benefits and protection against inflation. This can be especially valuable during periods of market volatility and rising prices, helping clients to achieve a more stable and resilient investment outcome.

Finsum: Real estate’s diversification and inflation hedging benefits are among the reasons why institutional investors continue to maintain their increased allocation to the asset class.

For investors nearing or in retirement, navigating the delicate balance between capital preservation and growth can be a tightrope walk. While holding ample cash provides comfort during market downturns, it risks missing out on potential gains. Enter the buffer ETF, a unique investment vehicle offering shelter from storms while still allowing a path to sunshine.

These ETFs, also known as defined outcome ETFs, employ options to create a buffer against market declines. A typical fund might protect holders against, say, the first 9% of losses. But just like insurance, this protection comes at a price.

Unlike regular ETFs that track an index precisely, buffer ETFs also cap their upside potential. So, if the market soars, the fund will only capture a percentage of that gain. It's a trade-off: limited sunshine for guaranteed cover during rain.

Of course, buffer ETFs aren't a magic bullet. Their complexities require careful research. Fees, the specific buffer and cap levels, and the underlying index all affect their performance. As popular as the concept has become in recent years, more than 200 of these funds now exist offering a wide range of features. For advisors looking for a way to offer their clients downside protection, buffer ETFs are worth a look.

Finsum: A new category of exchange traded funds, buffer ETFs, has been growing in popularity due to their downside protection and ability to share in upside gains.

2024 has started off with a bearish tone for the energy sector amid concerns of a supply glut and weakening demand. On Monday, crude oil prices dropped 4% as Saudi Arabia reduced prices for Asian customers by $2 per barrel. 

This is leading to speculation that Saudi Arabia could be looking to regain market share by punishing US producers and undercut cheaper Iranian and Russian oil. It could lead to a similar situation as 2020 when oil prices collapsed as Saudi Arabia flooded the market to punish other producers. Currently, the US is producing 13.2 million barrels per day of oil and has been restocking inventories and increasing exports. Others see it more as the consequence of a weak demand environment and a reflection of a decelerating economy. 

Energy prices had been higher to start the year amid an increase in geopolitical tensions. These include Houthi rebels attacking commercial vessels in the Red Sea and the escalations in the war between Israel and Hamas which could turn it into a larger, regional war. However, these concerns are being dwarfed by the supply and demand picture as evidenced by West Texas crude oil at $70 per barrel. 

Finsum: Oil prices dropped as Saudi Arabia announced that it would be reducing prices for Asian customers. Some believe that the country could be acting to protect market share.