Displaying items by tag: ETFs

Separately managed accounts (SMAs) have been utilized for decades to effectively manage client assets. Benefits include transparency, flexibility, control over costs, and choice. They can be optimized for various purposes including taxes, income, cash flow, etc. They also allow for more customization than ETFs or mutual funds. 


They are particularly popular for fixed income purposes and have seen impressive growth in recent years. For instance, municipal fixed-income assets went from $100 billion in 2008 to $718 billion in July 2023. In part, this is due to SMAs becoming more accessible to a wider universe of investors as improved technology has led to lower costs and lower minimum amounts to invest. 


ETF’s presence in the municipal bond market is also growing fast. There are now 81 funds and $108 billion in assets, a 50% increase from 2021 but less than 3% of the total muni market. Many active mutual funds are being converted into active ETFs. One advantage is greater liquidity which allows investors to quickly gain exposure as a placeholder while they accumulate individual securities.

Mutual fund flows can be affected by market sentiment, leading to selling during periods of redemption, which is not an issue with SMAs. Due to the growth of SMAs and ETFs, muni mutual funds have seen net outflows over the last couple of years. Another factor is high rates making short-term securities or bank deposits more attractive relative to longer-duration assets. 



Finsum: There are multiple ways to invest in municipal bonds. One of the fastest-growing methods is through separately managed accounts which offer some specific benefits relative to ETFs or mutual funds. 


Published in Bonds: Total Market
Tuesday, 02 January 2024 15:56

Are Single-Stock ETFs Here to Stay?

Single-stock ETFs were introduced in Europe in 2018 and last year in the US. Now, there are nearly 50 single-stock ETFs with the majority of them tracking mega cap tech stocks like Microsoft, Nvidia, Amazon, and Tesla. Collectively, they have $3.3 billion in assets. Providers include Direxion, AXS, GraniteShares, and YieldMax and strategies fall under option income, bull, or bear.


The largest one is the Direxion Daily TSLA Bull 1.5x Shares which has over $1 billion in assets and tracks the underlying stock with leverage by using swaps and other derivatives. The second-largest at $841 million in assets is the YieldMax TSLA Option Income Strategy ETF. This category of single-stock ETFs will sell call options on the underlying stock to generate monthly income. 


The recent success of these ETFs isn’t surprising given the strong performance of tech stocks this year with many hitting all-time highs. According to Rich Lee, the head of ETF trading at Robert W. Baird & Co., more single-stock ETFs will be hitting the market due to strong demand for these products, and he expects more innovation as well.


The current crop of single-stock ETFs are more suited for short-term speculation rather than long-term investing given higher costs. In August, the SEC issued a warning about these products, “Because leveraged single-stock ETFs in particular amplify the effect of price movements of the underlying individual stocks, investors holding these funds will experience even greater volatility and risk than investors who hold the underlying stock itself,” which encapsulates the risks. 

Finsum: Single-stock ETFs are a small but fast-growing category. While they’ve performed well due to the bull market in tech, they remain unsuitable for long-term investors. 


Published in Eq: Tech
Thursday, 28 December 2023 02:52

AllianceBernstein Launches 4 Fixed Income ETFs

AllianceBernstein launched 4 new fixed income ETFs. With these new issues, AllianceBernstein now has 7 active fixed income ETFs and a total of 12 ETFs. The firm entered the ETF market in 2022 with the Ultra Short Income ETF and the Tax-Aware Short Duration ETFs. These now have assets of $587 million and $290 million, respectively.


Two of the new ETFs - the Tax-Aware Intermediate Municipal and Tax-Aware Long Municipal - invest primarily in municipal bonds and have a 28-basis points expense ratio. Its other fixed income ETF launches are the Corporate Bond ETF and the Core Plus Bond ETF. The Corporate Bond ETF invests primarily in US dollar-denominated corporate debt issued by US and foreign companies. The Core Plus Bond ETF will invest primarily in corporate bonds and mortgage and asset-backed securities. These ETFs have an expense ratio of 30 and 33 basis points, respectively. 


As of December 1, active fixed income ETFs had a total of $169.8 billion in assets and $30.1 billion of net inflows according to Morningstar. In contrast, passive fixed income ETFs had total assets of $1.3 trillion and net inflows of $169.1 billion. The higher ratio of net inflows to assets for active fixed income indicates that the category is making up ground with passive fixed income.

Finsum: AllianceBernstein is launching 4 new active fixed income ETFs. Overall, active fixed income is much smaller than passive fixed income, but the gap is shrinking.


Published in Wealth Management

There was an inflection point for financial markets in October. Soft inflation data resulted in a change in consensus as Fed futures now indicate that the Fed’s next move is more likely to be a rate cut rather than a hike. One of the biggest winners of this dovish shift has been small-cap stocks as the Russell 2000 is up 12.1% over the last 90 days and 8.5% over the past month. Another reason for interest in the sector is that valuations are at historically low levels.


In theory, rate cuts are bullish for small-cap stocks since they lead to lower financing costs, puts upward pressure on multiples, and tends to be a leading indicator of an increase in M&A activity. In reality, rate cuts are often necessary due to a weakening economy. Thus, a major variable in whether small-caps deliver stellar returns is whether inflation can continue to moderate without the economy tumbling into a recession. 


According to Mike Wilson, CIO and chief US equity strategist for Morgan Stanley, investors should pay close attention to earnings revisions, high frequency economic data, and small business confidence. At the moment, all of these measures are moving in the wrong direction. He adds that for small-cap outperformance to continue, GDP needs to reaccelerate, and inflation needs to stabilize at current levels. 

Finsum: After years of underperformance, small-cap stocks are seeing huge gains on rising odds of a Fed rate cut next year. However, continued outperformance for the sector depends on certain variables.


Published in Eq: Small Caps

Passive ETFs have lower expense ratios because they don't require a team of portfolio managers to constantly analyze and adjust the mix of underlying investments. Over time, this lower cost can add a meaningful amount to the value of an investor's holdings.

While advisors and investors appreciate lower expense ratios, ETF's benefits extend beyond a simple fee advantage. A closer look reveals another hidden strength: real-time trading.


Unlike traditional mutual funds, which price investments only at day's end, ETFs operate like stocks, providing continuous price transparency and allowing for immediate execution. Gone are the days of uncertainty surrounding redemption values; with ETFs, you see the precise price you'll pay and receive, empowering informed decisions throughout the trading day.


Yet another impactful advantage lies in their liquidity. Popular ETFs often boast trading volumes exceeding even blue-chip stocks. This translates to tight bid-ask spreads, minimizing the price difference between buying and selling, and enabling efficient trade execution.


The combination of low-cost, real-time pricing, and ample liquidity make ETFs powerful tools for financial advisors seeking precision and flexibility within their client's portfolios.

Finsum: Low cost is not the only reason financial advisors should consider ETFs in their client’s portfolios. Consider these other advantages as well.


Published in Bonds: Total Market
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