Displaying items by tag: clients

For Vettafi’s Modern Alpha Channel, Scott Welch and Andrew Okrongly discussed how the WisdomTree Endowment Model Portfolios are faring given the volatile nature of markets over the past year. 

Endowment models have recently been introduced to individual investors, and they typically offer broad and global diversification, more use of active strategies as opposed to passive ones, non-traditional  and low correlation assets, longer term view, and a disciplined and repeatable process through multiple market cycles. The ultimate result is a portfolio that is very diversified and should deliver positive returns in all sorts of market conditions.. 

Of course, stocks and bonds continue to make up the bulk of the holdings. And, endowment portfolios typically use leverage to free up funds for investing in real assets and alternative investments for diversification and non-correlation. 

Examples of real assets include precious metals, energy commodities, and real estate. These tend to perform well in inflationary environments while adding to diversification. Alternative investments include long/short strategies, global macro, managed futures, options, short-selling, and event-driven trades. These also lead to more diversification than a standard portfolio. 

Over the last couple of decades, endowment model portfolios have accomplished its goal of blunting volatility while delivering consistent, steady returns. The one drawback is that these portfolios perform poorly during equity bull markets but tend to catch up during the ensuing bear markets. 

Finsum: Endowment model portfolios are a relatively new offering to individual investors. These portfolios mimic the style of endowments by investing in stocks, bonds, real assets, and alternative investments with the goal of smoother returns and more diversification. 

In an article for InvestmentNews, Bruce Kelley covers how Goldman Sachs and Citigroup are looking to bolster their wealth management divisions. In this sense, these banking giants are behind their peers like Morgan Stanley and UBS who have been quite aggressive in recruiting financial advisors.

Currently, these efforts consist of recruiting experienced advisors, training younger advisors, and acquisitions of thriving practices. One challenge for Citi and Goldman Sachs is that recruitment of advisors is quite competitive, leading to higher prices and more generous terms. Additionally, technology has also given more tools and capabilities to advisors, shrinking the gap between megabanks and smaller practice. 

Despite this, Wall Street banks continue to see wealth management as an area of growth. On a recent earnings call, Citigroup CEO Jane Fraser said, ““We see a lot of potential for growth in Asia as we fill in the coverage across the full wealth spectrum there. We will be scaling up in the U.S. by building out the investment offering and cross-selling into our existing and new clients across the country.”

Similarly, Goldman sees its future growth opportunities coming from hiring more advisors. It’s looking to add to its stable of 1,000 financial advisors for wealthy clients in the US and internationally.

Finsum: Advisor recruiting has been heating up over the past decade. Goldman Sachs and Citigroup have fallen behind their peers but are looking to increase their efforts in the coming quarters.

While ESG investing has boomed over the past decade, there are some drawbacks. One is the lack of clear definition of ESG, and what qualifies an investment to be sufficiently deemed ESG. For instance, some ESG funds have much wider latitude, while others are much more discriminating. In an article for Vettafi, James Comtois discusses why some investors who believe in ESG investing are nevertheless unsatisfied with many ESG investment options.

Another issue is greenwashing which is when a company is deceptive or gives false information about its products or processes. As an example, some ESG funds will contain fossil fuel companies, or companies with a record of pollution.

This also brings up a broader criticism of ESG that asset managers are forcing their views on investors, markets, and companies. For investors who believe in ESG investing but are wary of greenwashing, direct indexing offers a solution.

With direct indexing, any ESG index can be replicated, and any companies can be excluded that merit concern. With direct indexing, investors can ensure that their values are reflected in their investments, while retaining the benefits of investing in a diversified index with low fees. 

Finsum: Direct indexing solves one of the major concerns about ESG investing which is that it includes many companies with poor environmental records who are engaged in greenwashing. 

A financial advisor practice’s long-term success is dependent on building a pipeline of prospects given that attrition and turnover is a given. While there are many paths to accomplishing this goal, one of the most effective is social media. In an article for WealthManagement, Doug Wilber shares some tips on how advisors can leverage social media.

This is especially true for advisors looking to connect with Generation Z and Millennials as these demographics are more comfortable and receptive to messages on these platforms relative to traditional media. Social media also gives advisors an opportunity to share their expertise, personality, and build trust with potential prospects.

On social media, authenticity is the most important metric. Over time, an advisor can build relationships with potential clients. According to surveys, about half of investors say social media influences who they choose as their financial professional. 

Another benefit of social media is that these channels are on 24/7 which means that these interactions can happen at any time. These platforms also have infinite scale which means that the effort of producing content is the same with a small or large audience. 

Finsum: Having a social media strategy is essential for financial advisors who want to bolster their pipeline of prospects and/or connect with Millennials and Generation Z.

Markets often behave unexpectedly. This is certainly the case in 2023 as many have been caught off guard with strong equity markets which have sent stocks to their highest levels since the middle of last year. The S&P 500 is now nearly 20% above its October low which many would deem a new bull market.

In an article for TheStreet, Jim Collins, the founder of PortfolioGuru, discusses a model portfolio that would do very well if this unexpected return to normalcy continues. His strategy involves buying preferred shares of regional banks which have been among the hardest-hit parts of the market. The preferred shares do offer generous yield but have major upside in the event that interest rates move lower, easing the inverted yield curve which is proving to be a major challenge for the sector.

Collins says that this model portfolio is essentially a bet that the US’ financial system will remain stable and continue functioning well, meaning that we have passed the worst part of the crisis. He believes that the portfolio has considerable potential for capital gains in addition to hefty dividend payments. 

Finsum: Jim Collins shares a model portfolio that would particularly benefit if the crisis for regional banks is over and a return to normalcy is imminent for financial markets.