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Based on the results of a recent Invesco retirement income study, 83% of people with defined contribution savings plans expect it to be their largest source of income during retirement. However, some data is showing retirement portfolios were down as much as 23% last year. When you add in inflation, which is making everyday costs expensive, investors may not be able to rely on their 401k for income this year. That’s why John Faustino, the head of Broadridge’s Fi360, is recommending advisors and their clients consider the use of annuities as guaranteed income solutions in DC plans through Broadridge’s retirement income consortium. The consortium includes leading annuity providers such as Allianz, Nationwide, and TIAA, as well as data and analytics firms that work with advisors, such as Fi360, Cannex, and Fiduciary Insights. In an interview with planadviser, Faustino noted that the consortium recently “published criteria for comparing retirement income solutions contained within what we call our prudent practices, which is a collection of legislation, regulation and case law.” He also mentioned that they’re launching a software tool based on this methodology later in the year. The criteria are “designed to help advisers document their reasoning for selecting a particular retirement income solution for a plan and to help them monitor their selections and the overall process.”

Finsum:Broadridge’s retirement income consortium, made up of annuity providers and data firms, published criteria for comparing retirement income solutions such as annuities.

Much has been talked about regarding the failure of the 60/40 portfolio last year, but Vanguard analysts recently suggested that investors shouldn’t abandon a balanced portfolio strategy. Roger Aliaga-Diaz, portfolio construction head for Vanguard, and his team said in a recent note that “A balanced portfolio still offers the best chance of success.” Aliaga-Diaz noted that while the negative correlation between stocks and bonds broke down last year, “longer term, however, the data support balanced portfolios.” The firm noted that “The policy response to higher and more persistent inflation and the subsequent repricing of risk in global capital markets has led to a dramatic shift in our time-varying asset allocation (TVAA) outlook.” The TVAA looks to harvest the risk premiums for which the Vanguard thinks there is modest return predictability. Based on the firm’s current outlook, Vanguard’s optimal TVAA portfolio “calls for a 50/50 stock and bond split, and favors bonds and emerging markets.” Specifically, Vanguard’s TVAA allocation suggests 30% U.S. stocks, 20% international (divided equally between developed and emerging markets), 22% international bonds, and 27% U.S. fixed income (mostly in U.S. intermediate credit bonds). The firm noted that the interest rate tightening cycle in 2022 raised its expected bond return forecasts by more than the equity sell-off raised expected equity returns.

Finsum:While the 60/40 portfolio failed last year, Vanguard believes a balanced portfolio still offers the best chance of long-term success and recommends a 50/50 stock and bond split.

In a recent interview with ESG Clarity, Morningstar CEO Kunal Kapoor offered his thoughts on direct indexing and how custom features could lead to more people being interested in investing. Kapoor mentioned that while separate accounts were always touted as providing customization, in reality, most separate accounts did not provide much customization. That’s why he is so excited about direct indexing. He stated that, “the cool thing about building a direct index is that at the start, the adviser’s having this conversation with the client, not only about the risk profile, risk tolerance, time horizon – but suddenly the conversation is about preferences.” He believes that these preferences get clients engaged with their advisors. He said, that it can “allow an adviser to really drill into an individual’s preferences in an educated way – really walkthrough for the individual what the pros and cons are of implementing those preferences in a portfolio.” Kapoor also compared direct indexing to passive investing. He believes that while passive investing can be good for most people, it can take the fun out of investing. Direct indexing, on the other hand, has many of the benefits of passive investing, but it brings back the fun of making choices.

Finsum:Morningstar CEO Kunal Kapoor believes that direct indexing creates more engagement between advisors and their clients since it requires them to discuss preferences.

If your clients are invested in Chinese companies and have a preference for ESG, it may be time for a change in their portfolios. It appears sustainability rules in western countries are at odds with what’s happening in China. While Chinese equities offer strong growth potential, their ESG ratings rank lower than western nations and most emerging markets. For instance, Sustainalytics, a sustainable rating agency owned by Morningstar, downgraded three Chinese big-name tech companies on its watchlist in October. The three stocks, Tencent, Weibo, and Baidu, were moved to the category of “non-compliant with UN principles.” In addition, Hong Kong Watch, a UK-based group that researches investment and human rights issues in China, recently said in a report that “many of the biggest asset management, state pension, and sovereign wealth funds were passively invested in companies allegedly involved in the repression of Uyghur Muslims in China’s Xinjiang region.” The report found three major stock indices provided by MSCI included at least 13 companies that “have allegedly used forced labor or have profited from China’s construction of internment camps and surveillance apparatus in Xinjiang.” Another problem is that Chinese companies are less likely to respond to queries from ESG rating agencies.

Finsum:With ESG investing continuing to gain momentum, it appears that many Chinese companies are at odds with ESG due to censorship and repression in China.

After a tough year for fixed income, many bond strategists are expecting 2023 to be a great year for bonds. But where should advisors and investors look to invest? In an interview with Yahoo Finance Live, PIMCO Managing Director and Portfolio Manager Sonali Pier offered her perspective on where the sweet spot will be for bonds this year. She believes that despite potential volatility, “there’s a lot of room now for income-producing assets.” She stated, that “a sweet spot may be those Triple Bs within investment grade, for example, where dollar prices have come down a lot as a result of the interest rates rising as well as credit spreads having widened.” In the interview, she also talked about what areas of the corporate bond market to avoid. Her firm is most concerned with areas where there are “low multiples on businesses, low margins, high cyclicality, where it's very difficult to weather a storm like a recession when you have those types of things against you as well as still inflation as an impact.” She mentioned industries such as retail, autos, and wire lines to avoid that are seeing declines due to a “shift in investor demand as well as disruption from the supply chain.”

Finsum:PIMCO portfolio manager Sonali Pier believes that a sweet spot for bonds this year may be triple Bs within investment grade while avoiding industries such as retail, autos, and wire lines.

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