Wealth Management
Strive Asset Management, the upstart asset manager which was founded by Republican presidential candidate Vivek Ramaswamy, is launching its own model portfolio offerings. Strive is seeking to compete with Blackrock and Vanguard by solely focusing on economic factors when it comes to investing rather than also accounting for non-economic factors like ESG.
Strive’s model portfolios would also have the same investing and voting style as its funds. In its filing, the company said, “Strive engages in advocacy intended to encourage public companies to focus on economic factors in maximizing value for shareholders. This may include submitting or supporting shareholder proposals at public companies, advocating for changes in management or corporate structure at public companies, and a wide variety of corporate and/or public engagement.”
Its model portfolios would use existing Strive ETFs and one third-party ETF. In terms of fees, Strive would only receive its ordinary ETF fees and not charge any additional fees for its models. Currently, the asset manager has launched 11 ETFs with expense ratios between 5 and 49 basis points.
As of last month, these 11 ETFs had just over $1 billion in assets. The company aims to appeal to conservative-minded investors who are turned off by focus on ESG and other non-economic factors when it comes to investing and shareholder initiatives.
Finsum: Strive Asset Management is launching model portfolios as it looks to compete and take market share away from more established asset managers.
Alternative investments encompass everything excluding equities, fixed income, and cash or money markets. According to Angie Spielman,the founding partner and a financial advisor at Manhattan West, this is a great time to invest in alternatives, and she recommends a 33% allocation for her clients assuming that it fits their risk profile.
Demand for alternatives is growing given that the asset class outperformed in 2022 while both stocks and bonds posted negative returns. Additionally, it’s proven to be a source of positive returns and diversification.
Spielman sees the new benchmark portfolio as being equally divided between equities, bonds, and alternatives. Although, she warns that this mix is not appropriate for more risk-averse clients. She also believes that private markets will outperform public markets over the next decade. Within the asset class, she favors private equity, venture capital, real estate, and private debt.
In addition to benefiting existing clients, providing access to these types of investments can also attract prospects who are more risk-tolerant and seeking diversification. She recommends easing new clients into these types of investments with smaller sums at the beginning. Alternative investments do typically have higher fees and tend to have less liquidity and transparency than traditional options.
Finsum: Alternative investments are growing in popularity and offer specific benefits to advisors and clients.
2023 has been the year of active fixed income based on inflows and new issues. Nearly every asset manager has been jumping on the trend as we’ve seen launches from Blackrock, Capital Group, and Vanguard in the last couple of months.
The latest to join the fray is JPMorgan which announced the JPMorgan Active Bond ETF (JBND) which will trade on the New York Stock Exchange. The ETF will invest in a diversified portfolio of intermediate and long-term debt securities with a focus on securitized debt products. It seeks to differentiate itself with an emphasis on value through careful security selection and aims to outperform the benchmark, Bloomberg US Aggregate Bond Index, over a 3 to 5 year time frame. In addition, JBND has a cost basis of 30 basis points.
Active fixed income is benefitting from the current volatility and uncertainty regarding monetary policy. There’s also a fundamental shift in the wealth management space as institutions and advisors are more familiar with these types of products vs mutual funds. And, many younger advisors and investors prefer the ease and familiarity of the ETF structure vs mutual funds. Therefore, asset managers are introducing ETF versions of their most popular active fixed income funds.
Finsum: Active fixed income continues to be a hot space with JPMorgan launching another offering. Here are some reasons for the category’s growing popularity.
More...
2023 has been a volatile year for bonds due to a better than expected economy and hawkish Federal Reserve. Yet, inflows into bond funds are up 38% compared to this time last year at $235 billion according to Blackrock.
The firm sees fixed income demand driven by high yields and the desire to reduce portfolio volatility. Currently, the 10 year Treasury is yielding 4.6% which is 90 basis points higher than at the start of the year. In contrast, the 10 year was yielding around 1% in October 2021.
Currently, the central bank is in a ‘wait and see’ mode regarding further hikes and the duration of the current cycle. Wall Street analysts anticipate that flows should further pick up once it’s clear that the tightening cycle is over as they look to lock in yields at these levels.
In terms of fixed income ETFs, the iShares 20+ Year Treasury Bond (TLT) has been the biggest beneficiary with $17 billion of net inflows YTD despite a 13% drop. However, there is less enthusiasm for riskier fixed income due to concerns that a recession could lead to a spike in defaults as inflows into lower-rated bond funds have lagged.
Finsum: Fixed income inflows have been strong all year despite considerable volatility and uncertainty about the economy and Fed.
At one time, direct indexing was only available and viable for ultra high net worth investors. This is now changing due to technology which is simplifying the process, the sharp decline in trading commissions, and the fractionalization of shares.
With direct indexing, investors and advisors can replicate any index in a managed account. Instead of buying a mutual fund or an ETF, an investor buys the actual components of an index. This comes with added benefits as they can tweak or adjust the holdings of the index to suit their own inclinations or unique situation. It also means that these investors can harvest tax losses which can then be used to offset taxes from capital gains in another part of the portfolio.
With direct indexing, tax loss harvesting can lead to better performance especially in more volatile years for the market. Even in up years, some segments of the market may finish in the red which provides opportunities to harvest losses to offset gains.
Direct indexing is particularly useful for investors who have strong beliefs or unique financial situations. For instance, an investor who does not want to invest in tobacco companies can eliminate these from an index and choose another stock which has similar factor scores to ensure that the benchmark continues to be tracked.
Finsum: Direct indexing is an effective strategy to lower tax bills but is only accessible for a tiny segment of investors . Now due to technology and lower commissions, it’s available to nearly everyone.
In recent weeks, there has been a major outflow out of fixed income ETFs, following the breakout in long-term yields to their highest levels since 2007. According to Bill Gross, the co-founder and former CIO of PIMCO, retail ETF investors are reducing their holdings and contributing to volatility.
He commented in a CNBC interview that “Over the last few days, large bond ETFs that number in the $100bn range, are experiencing higher volume, which indicates small investor vigilantes are selling. They have been spooked over the last week or so by declines of 3%, 4% and 5% in their bond ETFs.”
In terms of the bigger picture, he attributes the weakness in fixed income due to the federal government’s $2 trillion deficit and the large amounts of incoming supply necessary to finance it. Another contributing factor is the Federal Reserve’s quantitative tightening program which is also adding to supply. Ultimately, he sees yields on 10-year Treasuries reaching as high as 5%.
He believes the Fed is done hiking this cycle. However, he doesn’t see much upside for long-duration fixed income even if the Fed starts cutting rates due to sticky inflation, nearly 30% of Treasury supply maturing in the next couple of years, and structurally high deficits.
Finsum: Bill Gross shared some thoughts on the bond market and how recent fixed income ETF outflows are contributing to volatility.