Eq: Small Caps

A recent Goldman Sachs survey reveals that investors are enthusiastic about separately managed accounts (SMAs). Financial advisors appreciate SMAs for their professional management, customization, transparency, tax efficiency, and diversification benefits. 

 

Chris Mankoff of JTL Wealth Partners finds SMAs advantageous for aligning with clients' preferences and optimizing tax strategies. While there have been challenges in the past with SMAs but the recent technological advancements have made them more accessible and effective. 

 

Direct indexing, a step beyond SMAs, leverages technology for customized tax management and ESG preferences. Despite their benefits, SMAs may not be suitable for all clients, particularly those with smaller portfolios or predominantly pretax investments.


Finsum: While SMAs might not be for all, with a sizeable portfolio technology makes them easier for advisors to manage. 

The gigantic win for spot Bitcoin ETFs with the SEC represents a significant milestone in facilitating compliant access to the leading cryptocurrency. Since January 10, inflows exceeding $10 billion have bolstered optimism for Bitcoin and the broader market outlook. For retail investors, these ETFs offer a streamlined pathway to securely backed Bitcoin, simplifying the complexities associated with managing private keys.

 

As institutions grapple with meeting client demand for digital asset exposure, crypto separately managed accounts (SMAs) have emerged as a complementary investment solution gaining traction among wealth managers, family offices, and registered investment advisors (RIAs). SMAs, a staple in traditional asset classes, allow for direct ownership of underlying assets and provide customizable portfolios tailored to individual client preferences and investment strategies.

 

 With their ability to offer regulatory compliance, security measures, and tax optimization strategies, SMAs present a compelling option alongside spot Bitcoin ETFs for navigating the evolving landscape of digital asset investments.


Finsum: SMAs are a great pathway to optimize tax structure for investors and get simplicity in a turbulent alternative space like crypto.

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.

 

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