Displaying items by tag: bull market

Direct indexing, along with ESG and active funds, has been the dominant narrative in 2021, but that could be the case going forward. Morgan Stanley published a report predicting direct indexing to grow by over 300% to a $1.5 trillion industry. Companies like BlackRock, JPMorgan Chase, and Vanguard (among many others) are racing to bring a previously exclusive opportunity to more investors. The biggest advantage is taking advantage of the individual stock ownership by realizing losses for tax purposes, which studies have shown can increase portfolio returns by about 1%. Realize this comes at a cost because this has a more active tilt to it which comes with higher fees and costs. This could be a net benefit as direct indexing costs are about 0.17-0.27 percentage points higher on average and clearing the tax returns.

FINSUM: To the layperson direct indexing is the active wolf in sheep’s clothing, but they take more advantage of tax-loss harvesting than traditional active investing, benefiting their clients.

Muni ETFs have set a record for inflows this year drawing a whopping $83 billion. Bond buyers are fleeing the low yield big government debt with inflation risk and flocking to Muni funds which have more attractive fees and still have some after-inflation yield. Active funds are seeing a large uptick as a subsegment with big winners like JPMorgan Ultra-Short Muni Income ETF, and new active funds are popping up at a fast rate. Institutional investors see lots of growth in active fixed-income ETFs as more investors are chasing outperformance in a stagnant bond market. 

FINSUM: As the Fed comes down on the treasury market, muni’s are in a prime position to get yield pass through to fight against inflation.

2021 is wrapping up which means we will have annual launch numbers for different types of ETFs. One area of surging growth is active fixed income where there were 15 new launches this year, this is quite an historic change from over 5 years ago when there were a meager 7 new funds launched. Overall the growth is staggering because a decade ago there were only about 25 active fixed income funds and there are well over 175 today. Historically low yields around the globe and significant interest rates have many investors pouring over $137 billion into active fixed income funds, as they rely on pickers to outperform the stock market. A variety of quantitative funds are popping up in fixed income leading to smart beta strategies which can also drive better returns.

FINSUM: Active fixed incomes growth has stayed stable the last five years but the explosion is no doubt a retort to the global macro factors facing fixed income managers. 

Investors are doubling down efforts to carry out specific reviews of companies ESG compliance, as a new survey found that 72% carry out reviews compared to a meager 32% a couple of years ago. Some stocks are standing out from the crowd as good ESG investments moving forward. Microsoft stands out by their detailed yearly reports that will stand up to scrutiny and their pledges to reduce their carbon footprint seem very plausible. The next big stock is Nvidia which has one of the highest ESG ratings in the chip manufacturing industry and GPU and other chip demand will only grow moving forward. Dividend darling Coca-Cola should also be on investor’s radar as it has a long positive history of supporting sustainable initiatives. Rounding out the best picks is American Express which has an AA rating on ESG efforts putting it in the industry's 93 percentile.

FINSUM: Stock pickers should look out for consistent ESG benchmarks as this will likely lead to outperformance moving forward.

Markets were flummoxed early this week with the growing Omicron Covid-19 variant spreading rapidly in pockets globally. Despite these growing concerns and a seemingly endless pandemic, the JPMorgan is calling for a big 2022. With one of the absolute highest predictions on wall street JPMorgan is calling for a 5050 S&P 500 to end 2022. Easing supply chains, earrings growth and a more stable China are the key parts of their prediction for a successful equity market in 2022. Even if investors overweight China in their portfolios, the biggest threat will be domestically. A hawkish turn by the Fed would be detrimental to their prediction and is still the largest sort of risk in JPMorgans eyes.

FINSUM: Powell is talking tapering and rate rises just as Omicron is spreading which could be the perfect storm for a bad Q1 in 2022.