JPMorgan believes that when it comes to fixed income, active outperforms passive. The bank believes that the benchmark, the Bloomberg US Aggregate Index (AGG), is fundamentally flawed due to an antiquated design. It doesn’t provide sufficient diversification as it only captures just over half of the bond market. This is in contrast to equities, where passive indexes reflect a much larger share of the total market.  

This is because the benchmark was created in the 1980s where fixed income was dominated by Treasuries, agency mortgage-backed securities, and investment-grade corporate bonds. Now, there are many more types of fixed income securities that are not represented in the AGG. This also means more opportunities for active fixed income managers to outperform. 

Another fundamental flaw of the AGG is that borrowers with the most debt have the most weight. This means that passive fixed income investors have the most exposure to the companies with the most debt. In contrast, active managers can weigh their portfolios by factors that are more meaningful and relevant to long-term outperformance. 

JPMorgan’s active funds differ from the benchmark. Instead of short-duration Treasuries, it allocates more to short-duration, high-quality asset-backed securities as these have outperformed in 12 of the last 13 years. The bank also eschews securities that the benchmark is forced to own such as low-coupon MBS. In terms of corporate bonds, JPMorgan’s active funds prioritize quality. This is in contrast to AGG as 42% of its corporate bond holdings are rated BBB. 

Finsum: JPMorgan makes the case for why investors should choose active fixed income. It identifies a couple of fundamental flaws in the construction of the Bloomberg US Aggregate Bond Index.

The stronger than expected jobs report and inflation data have punctured the narrative that the Fed was going to imminently embark on a series of rate cuts. As a result, volatility has spiked in fixed income as the market has dialed back expectations for the number of hikes in 2024.

Investors can still take advantage of the attractive yields in bonds while managing volatility with the American Century Short Duration Strategic Income ETF (SDSI) and the Avantis Short-Term Fixed Income ETF (AVSF). Both offer higher yields than money markets while also being less exposed to interest rate risk which has led to steeper losses in longer-duration bonds YTD. 

SDSI is an active fund with over 200 holdings and an expense ratio of 0.33%. Its current 30-day yield is 5.2%. The ETF’s primary focus is generating income by investing in short-duration debt in multiple segments such as notes, government securities, asset-backed securities, mortgage-backed securities, and corporate bonds. 

AVSF is even more diversified with more than 300 holdings and has a lower expense ratio at 0.15%. It has a 4.7% 30-day yield. AVSF invests in short-duration, investment-grade debt from US and non-US issuers. The fund’s aim is to invest in bonds that offer the highest expected returns by analyzing a bond’s income and capital appreciation potential. 

Finsum: Recent developments have led to a material increase in fixed income volatility. Investors can shield themselves from this volatility while still taking advantage of attractive yields with short-duration bond ETFs. 

Marketing is a non-negotiable for any practice that is serious about sustaining consistent growth. While there are many aspects to consider, an overriding factor is determining the right budget. Some of the variables that will impact this decision are the size of the firm, the marketing strategy, and the channels that will be targeted. 

It can be helpful to study the marketing strategies and budgets of other advisors. According to a study conducted by Broadridge, the average advisor spent $17,400 on marketing in 2022. The average spend for an RIA was $27,800 vs $9,700 for independent broker-dealers. In terms of impact, the study found that firms were onboarding an average of 23 clients per year with the cost of acquisition at $743 per client. However, there was significant variance as some reported spending under $250 per client, while others reported figures above $2,000 per client. The survey also showed that 30% of advisors plan to increase their marketing budget, while only 2% of advisors plan to reduce spending. 

The general rule, for more established advisors, is that the marketing budget should be between 1% and 10% of annual revenue. Marketing is also an iterative process, so it’s important to evaluate the effectiveness of spending and various tactics in terms of desired metrics such as generating leads, finding prospects, or brand building. 

Finsum: Marketing is key to sustainable growth for advisors. Determining a marketing budget is the first step. Here are the most important factors to consider, and how other advisors are approaching the matter.

First Trust is launching a new managed floor product called the First Trust Vest U.S. Equity Moderate Buffer UCITS ETF. The ETF will strive to capitalize on the gains in the S&P 500 but will cap the returns at 13.86% annually. However, this comes with the benefit of a 15% downside protection.

The Fund will have an outcome period of a year and will set to end in February 2025, when this time expires the cap and buffer conditions will be reset to match the current market conditions adapting to the new financial climate. 

Managed by First Trust Advisors L.P. and sub-advised by Vest Financial LLC, GFEB invests primarily in Flexible Exchange Options (FLEX Options) on the S&P 500, providing a customizable approach to outcome-based investing and mitigating bank credit risk. Derek Fulton, CEO of First Trust Global Portfolios, highlights the fund's role in addressing investor concerns about downside risk and underscores the increasing popularity of buffered ETFs as a solution in today's market landscape.

Finsum: Buffer ETFs like these give investors an alternative route to navigate the tricky 2024 markets while maintaining exposure to the upside equities offer. 

Junk-bond ETFs showed a slight uptick, suggesting potential outperformance in 2024, especially under a soft-landing scenario for the US economy, according to Michael Arone of State Street Global Advisors. 

While high-yield bonds may surprise investors with their resilience, concerns persist about the Fed's tightening and its impact on economic growth. Despite recent modest gains, ETFs tracking investment-grade bonds are still in the red for the year.

 Investors remain cautious about high-yield spreads and potential widening, with some preferring rate risk over credit risk. Arone suggests a diversified approach, favoring short-term debt and bonds with intermediate durations.

Finsum: Duration management could be the key to weathering the storm in 2024.