Wealth Management
According to research from WisdomTree Investments and shared in an article by Nick Peters-Golden on VettaFi’s Modern Alpha Channel, the volatile markets and uncertainty about the economy in 2020 yielded some insights and lessons that can be applied today.
2020 was particularly challenging for advisors given the outbreak of the coronavirus and aggressive policies to deal with it, including massive amounts of fiscal and monetary stimulus. There were other practical challenges, such as maintaining communication with clients virtually.
The research results in some surprising takeaways. For one, investors didn’t seem more panicked despite the steep drop in stock prices amid the initial lockdowns. Additionally, surveys showed that investors were satisfied with their advisors’ performance over this period.
WisdomTree attributes this satisfaction due to constant communication with clients and reassurance about their long-term plans. Most advisors increased communication with clients and were able to increase confidence by using model portfolios.
As a result, the number of investors who said advisors using third-party model portfolios was ‘absolutely acceptable’ rose to 86% from 90%. Additionally, advisors got high marks from clients about their accessibility and responsiveness than prior to the crisis.
Finsum: Research from WisdomTree Investments shows that clients were satisfied with advisors’ performance in 2020 despite a challenging environment.
Vestmark just unveiled its direct indexing offering which is part of its personalized unified managed account that will give its clients more bespoke services like tax optimization and portfolio management according to reporting by Diana Britton for WealthManagement.com.
Initially, the company launched six index-based SMA strategies in January. Now, it’s adding to this with its direct investment platform, enabling direct indexing for customers. This is just one part of its comprehensive, outsourced portfolio management service - VAST.
VAST includes direct indexing, separately managed accounts, mutual funds, ETFs, and individual securities. It’s already available on the Manager Marketplace which counts 200 managers and 1,000 strategies. Additional offerings include daily optimization to maximize tax loss harvesting.
Another feature is values-based investing which allows clients and advisors to screen out investments based on certain criteria. The current minimum for VAST is $250,000. While Vestmark’s offerings are similar to other institutions, the primary differentiator is the daily tax loss harvesting as other companies tend to harvest tax losses on a monthly or quarterly basis.
In an article for Bloomberg, Marvin G. Perez covered Florida Governor Ron DeSantis’ latest move in his war against ESG. Lately, the movement for institutional investors to consider environmental, sustainability, and governance criteria in their investments has drawn criticism from conservatives.
Florida is increasingly the frontline for these political battles, so it wasn’t surprising to see the Republican-controlled State Senate approve a bill to abn state and local governments from using ESG criteria in making their decisions. Last month, the legislation passed the State House of Representatives and is expected to be signed into law by DeSantis soon.
DeSantis is looking to consolidate support as he is widely expected to enter the 2024 presidential race. He and others have criticized ESG investing as an overreach and symptomatic of ‘woke capitalism’. So far, Florida has pulled $2 billion from Blackrock funds which many consider to be the vanguard of the ESG movement.
The legislation also bars municipalities from selling bonds that are connected to ESG projects or ratings. Last year, Florida sold about $13 billion in bonds, making it the fourth-largest issuer in the country.
Finsum: Florida is increasing its efforts to combat ESG with the State Senate approving a bill that bars state and local governments from using ESG criteria in investments and selling bonds.
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After a few quarters of turbulence, economic conditions are improving for fixed income according to an article by Principal Financial Group. Essentially, the Fed is succeeding in realizing its mandate as inflation and economic growth are moderating.
This means that the Fed’s hiking cycle is most likely in its final innings. Already, we are seeing longer-term rates bending lower in anticipation which is providing support to the asset class. Although there is the potential for more short-term volatility, the softening of economic and inflation data means that the longer-term trend is higher.
The first quarter of 2023 featured mild softness in inflation and the labor market, while economic growth came in better than expected. In the second quarter, economic data is likely to soften which increases the odds of the Fed pausing.
Additionally, the Fed’s rapid tightening over the past year has not been felt in the economy. As these effects become more evident, fixed income will outperform and reward investors willing to sit through near-term volatility.
Finsum: Fixed income performed well in the first quarter, but economic conditions continue to develop in favor of the asset class.
In an article for InvestmentNews, Palav Ghosh discussed the growth in capital allocated to alternative investments by global asset managers. There was a 10% increase from 2021’s $130 billion to $144 billion in 2022 according to a report from Vidrio Financial.
Some of the largest destinations for this capital were private equity and venture capital which accounted for $61.6 billion. This was a slight drop off from $64 billion in 2021 albeit not surprising given the struggles of these two asset classes. However, inflows into credit and real estate remained the same at $27 billion.
Interestingly, there was a more than 100% increase of inflows into hedge funds which went from $8 billion in 2021 to $16.6 billion in 2022. Inflows into infrastructure and real assets also slightly increased to $7.3 billion and $4.9 billion, respectively.
Some of the top allocators to alternative investments were the New York State Common Retirement Fund, the State of Wisconsin Investment Board, and the California State Teachers Retirement System.
Overall, allocators are moving away from the typical 60/40 model and closer to a balanced mix of private and public investments.
Finsum: Allocators are increasing exposure to alternative investments. This isn’t surprising given the volatility for stocks and bonds over the past year.
In an article for SmartAsset, Rebecca Lake, CEPF, discussed some networking strategies that advisors should implement to grow their business. First, networking will ensure that advisors have a pipeline of future opportunities.
Networking is also effective to help you establish a reputation in your community and can help you connect with people who could be potential clients. It’s especially important as word of mouth remains the primary way that people choose their advisors.
The simplest step is to join a professional association that is national or locally based. These will regularly put you in face-to-face contact with people in your industry and potential clients in an informal, relaxed setting. Local organizations will also give you the opportunity to participate in community events which can provide organic opportunities to form relationships with people in your community.
Another important piece for advisors is to grow a presence on social media. It can help display your personality and thinking on a deeper level, and it can help you find potential clients within your niche. And, you can also use social media to try to understand whether or not these prospective clients are a good fit for your practice based on their digital footprint.
Finsum: Networking is an integral part of success for any financial advisor as it will ensure that you have a pipeline of potential clients.