Wealth Management
Amid the growing backlash to ESG investing, several anti-ESG funds were launched. Yet, these haven’t seen a significant surge in terms of inflows or returns that would indicate that the category will have long-term success.
According to Morningstar, inflows into these funds peaked in the third quarter of 2022 at $377 million but have dropped by more than 50% to $183 million in the first quarter of the year.
Currently, there are 5 types of anti-ESG funds. Some are political and favor companies that are penalized by ESG factors. Another type are vice funds which invest in ‘sin’ stocks related to alcohol, tobacco, and firearms. There are also voter funds which look to vote against any ESG initiatives. Finally, the largest category are funds that previously used ESG factors for investment decisions but no longer do so.
The biggest player in the anti-ESG market is Strive Asset Management, which was founded by Republican presidential candidate Vivek Ramaswamy and aims to compete with Blackrock and Vanguard. Its first fund saw strong demand but later funds have seen minimal enthusiasm with an average of $5 million of inflows.
Finsum: Anti-ESG is an investing theme that launched last year, and many believed had potential. So far, there are limited signs that it's showing significant traction.
At Morgan Stanley’s annual US Financials, Payments & Commercial Real Estate conference, CEO James Gorman said that the bank is no longer relying on financial advisors recruiting for growth.
Gorman sees future growth coming from the ‘funnels’ that Morgan Stanley has built which it sees as key to the next $1 trillion in assets it aims to bring over the next 3 years. After a fevered pace of advisor recruiting, the company is seeing minimal movement other than small teams coming and going.
As part of the changing landscape, Morgan Stanley will only be recruiting high-quality teams with substantial assets. This does affect the marketplace given that Morgan Stanley has been one of the most aggressive in terms of recruiting over the past couple of years.
Overall, the bank is moving towards a more holistic, comprehensive strategy when it comes to acquiring assets. In the first quarter, it added $110 billion in new assets. $28 billion came from workplace channels, $20 billion came from advisors hired away from struggling regional banks, and the majority of the remainder came from existing brokers.
In the future, Gorman sees the workplace channel as being its most significant source of growth, especially given that the cost of luring advisors continues to increase.
Finsum: Morgan Stanley has been a leader in advisor recruiting. But, this is changing as evidenced by CEO James Gorman’s recent comments.
In an article for Dividend.com, Aaron Levitt discussed why active fixed income funds have outperformed passive fixed income funds.
The majority of active equity funds underperform their industry benchmarks. Therefore, it’s not surprising that these have dominated in terms of inflows.
But, it’s a different story in fixed income. Recent research from JPMorgan shows that active fixed income has outperformed passive. Some of the reasons for this is that passive funds are overweight with firms and entities that have the most debt.
Active funds have wider latitude and can find opportunities in various parts of the market. They also are able to take positions in different parts of the capital structure. The absence of passive funds in these spaces also leads to more favorable valuations. Many active funds are also able to take advantage of foreign debt and high-yield fixed income.
As a result, inflows into active fixed income have been growing at a faster pace than inflows into passive fixed income. More inflows into active fixed income should also lead to increased liquidity in many parts of the fixed income space.
Overall, active funds have failed to outperform passive ones in the equity space but have done so in fixed income.
Finsum: Recent research shows that active fixed income has outperformed passive fixed income. This is contrary to many investors’ expectations given the outperformance of passive equity funds vs active equity funds.
More...
Fixed income ETFs are seeing a surge of inflows over the past year given higher rates and an uncertain economic and monetary outlook. Blackrock is a pioneer in the space and has $800 billion in assets under management in its fixed income ETFs as of the end of the first quarter.
Now, the asset manager is setting a goal of $2.5 trillion by the end of the decade in assets in its fixed income ETFs. These comments were made by Salim Ramji, Blackrock’s global head of ETFs and Index Investments at its Investor Day earlier this week and were covered by Shanny Basar for Markets Media Group.
He sees the line between passive and active continuing to blur as investors demand more customization and scale. Currently, Blackrock manages $5.9 trillion in assets. Its ETF division, iShares, has $3.1 trillion in assets but accounts for more than 90% of revenue growth. In total, it offers 1,300 ETFs which is more than double that of any other company. Overall, Ramji sees annual ETF asset growth in the double-digits and revenue growth of single-digits to continue as well.
Finsum: Fixed income ETFs are booming due to an uncertain economic outlook and the highest yields in decades. Blackrock is targeting a tripling of its assets in its fixed income ETFs by the end of the decade.
For RIAIntel, Holly Deaton discussed the findings of a research study which showed that often advisors are getting in their own way when it comes to growing their practice and effectively serving their clients.
In 2022, about 20% of financial advisors saw a decline in assets under management according to a study from Janus Henderson. The research also showed that many advisors are not being aggressive enough when it comes to asking existing or potential clients for new business due to the fear of being seen as too pushy.
However, advisors need to move past these fears if they want to successfully grow their business. And, most advisors struggle with adding new clients and growing assets under management. In contrast, successful firms have a culture of growth and consistently take proactive steps to ensure a robust pipeline of future clients.
In addition to these factors holding back advisors, only 30% of advisors have a business plan in place, while only 25% have marketing material that is targeted towards their ideal client. This is despite 93% of advisors agreeing that a business and marketing plan are essential to growth.
Overall, advisors need to do a better job of aligning their actions with their goals. And, the key to accomplish this is overcoming psychological hurdles of appearing too pushy and spending less time on client service and portfolio management.
Finsum: Many financial advisors are falling short of reaching their business goals due to some psychological hurdles. For instance, advisors agree that it’s important to have a business plan but only a minority actually do.
In an article for Vettafi’s ETFDataBase, James Comtois reviews how direct indexing can solve complex financial problems for clients. The strategy is quite powerful as it blends the best parts of index investing with active management, however it’s only appropriate for a small group of investors.
One is high net-worth investors who are looking to reduce their tax bill. This is because direct indexing can be used to harvest tax losses with regular rebalancing. It also allows investors to capitalize on volatile markets. Frequent rebalancing is estimated to add between 20 and 100 basis points of alpha.
Another benefit is for clients with strong preferences. For instance, some investors may feel strongly about not investing in ‘vice’ stocks, so these stocks can be eliminated, while stocks with similar factors scores can be added. This is because with direct indexing, investors actually own the individual holdings rather than buying an ETF or a mutual fund.
Similarly, direct indexing can allow for diversification that goes beyond the index. For example, someone with a business in the tech industry may want to diversify their investments and holdings away from technology stocks. This level of customization is not possible with traditional index investing.
Finsum: Direct indexing is quite powerful and growing in popularity. But, it’s only appropriate for a select group of investors with specific needs and goals.