Wealth Management
As market volatility persists, major equity indexes hit new highs, prompting investors to shift from AI and technology stocks to small-caps. The Dow Jones rose 700 points on July 16, achieving a record high, while the S&P 500 followed suit, driven by interest rate cut hopes.
Natixis Investment Managers advises using selective, active strategies and high-conviction portfolio construction to navigate market peaks. They recommend not waiting for stock declines, as equity markets historically increase 70% of the time.
For an offensive strategy, focus on growth-oriented, small, and midcap stocks. Active management and model portfolios can help manage risks and optimize tax implications.
Finsum: Prepping your portfolio for the fall election is more crucial than ever.
As more Americans retire without pensions, individual annuities are becoming crucial for financial security. Registered index-linked annuities (RILAs) have gained popularity, especially during the pandemic due to their downside protection and upside potential.
In 2023, RILA sales reached $47 billion, a 15% increase from 2022, marking nine consecutive years of growth. This trend is expected to continue, with forecasts predicting sales of $52 billion in 2024 and $57 billion in 2025.
RILAs, primarily sold through independent broker-dealers, are now outpacing traditional variable annuities in sales. The market, driven by innovation and new entrants, is poised for sustained growth.
Finsum: Independent broker dealers leading the pack is interesting and something to monitor during the annuity boom.
BlackRock has introduced a 'buffer' ETF, the iShares Large Cap Max Buffer Jun ETF (ticker: MAXJ), designed to offer a 100% downside hedge for cautious investors. This ETF tracks the S&P 500 using options with an upside cap, aiming to protect against losses for about a year.
Buffer ETFs are beneficial as they help maximize returns while providing downside protection during volatile market periods.
They are especially attractive to investors wary of market volatility and economic uncertainties, such as inflation and potential interest rate hikes. BlackRock's extensive reach and marketing capabilities could help it catch up with competitors in this space.
Finsum: BlackRock’s pioneering in quantitative strategies puts them in a good position to maximize the abilities of buffer ETFs
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Middle-market collateralized loan obligations (CLOs) are gaining traction, driven by increased direct lending and investor interest, and are poised to surpass broadly syndicated CLOs. In 2023, middle-market CLO issuance reached $27.1 billion, capturing a record 23.4% of the US market.
A study by S&P Global Market Intelligence and Creditflux explores how CLO managers are adapting to this growth and managing risks, highlighting challenges like limited financial disclosures.
S&P Global Ratings predicts that default rates on leveraged loans could rise from 1.9% in October 2023 to 3% by September 2024, underscoring the need for effective risk management. The research also examines how managers are incorporating ESG factors to meet regulatory and investor expectations.
Finsum: CLOs seem like a natural place for ESG factors to gain traction.
Vanguard, managing over $9 trillion in assets, favors high-rated corporate debt over riskier high-yield bonds to guard against potential economic downturns caused by high borrowing costs.
Despite expectations of the Federal Reserve cutting rates by September due to cooling inflation and labor market weakness, Vanguard predicts rates will hold steady this year.
High demand for investment-grade bonds has compressed credit spreads, but Vanguard's defensive strategy, along with its active fixed income management, is poised to perform well if the economy weakens, allowing for credit additions at more attractive prices.
Finsum: Active managers will be eyeing fall fed decisions closely as they have a huge impact on bonds.
In 2023, registered investment advisors (RIAs) experienced a notable rebound, with assets under management rising nearly 18% to a median of $542 million, according to Schwab’s RIA Benchmarking Study.
The median organic growth rate hit 5%, excluding market performance. RIA revenue increased by 6.3%, and the number of clients grew by 4.3%. Top-performing firms saw even higher growth rates of 12%.
Key strategies for success included having a documented client persona, a solid value proposition, and a structured marketing plan. Client retention has remained steady at 97% over the past decade. Additionally, growing firms are focusing on talent acquisition and developing staff skills to drive future growth.
Finsum: Firms will simultaneously be doubling down efforts on retention and recruiting in 2024.