Wealth Management
Algo Chain, a fintech wealth management startup, is launching an AI powered toolkit subscription service which utilizes ChatGPT 3.5 Turbo. The service offers a variety of ETF model portfolios that use technical signals and macro data points to help users navigate markets and optimize asset allocation.
The AI is designed to generate signals and suggest allocations based on historical precedent. It enables advisors to sort through thousands of ETFs to find the ideal combination of factors to suit a client’s needs.
Given the proliferation of AI tools following the release of ChatGPT 3.0 earlier this year, it’s not surprising to see the technology applied to wealth management. The company believes that the bulk of a portfolio’s returns are due to asset allocation. Thus, it offers insight into how various asset allocations have performed in various circumstances.
This is Algo Chain’s second model portfolio offering. Earlier this year, it launched six model portfolios in tandem with HANetf, representing various themes. It’s expected that we will continue to see a proliferation of AI-backed tools to enhance model portfolio offerings over the coming months.
Finsum: Algo Chain is launching an AI powered toolkit to help enhance and optimize ETF model portfolios offerings.
In an article for InvestmentNews, Jeff Benjamin discussed the need for succession planning especially as there are about 100,000 advisors that are expected to retire over the next decade. In total, they are estimated to control $10 trillion in assets.
Of this group, 45% intend to transfer ownership to employees or a family member. Around 30% are looking for an external transition, while 25% do not have a firm succession plan. According to industry insiders, this is a major challenge for the industry especially as succession plans take time to prepare. Additionally, there needs to be guidelines for alternative scenarios especially as fewer young people are entering the industry.
Even in the event of a sale, there are complications and contingencies that need to be considered such as your clients’ comfort and the financing of such a transaction. With internal transitions, unexpected events can also arise such as relationships souring with prospective owners that result in a shift of strategy or advisors being recruited away to other firms.
Finsum: Financial advisors need to have a succession plan. This is especially critical given the wave of retirements that is expected to hit over the next decade.
In an article for MarketWatch, Morey Stettner discussed various options for alternative investments including non-traded real estate, private debt, venture capital and hedge funds. The asset class delivered strong returns in 2022 especially compared to stocks and bonds.
Looking ahead to the next decade, alternative investments are expected to fare better especially as they offer diversification to investors with the potential for higher returns. The traditional 60/40 allocation does not seem sufficient for a higher-rate, higher-inflation regime, and alternatives could be one solution for advisors to help clients reach their goals.
There are also some additional considerations about alternatives that advisors need to understand. For one, money isn’t immediately deployed especially in private equity and venture capital. Additionally, money often cannot be immediately redeemed, while there is less transparency about pricing in less liquid markets.
Many investors see opportunities in private real estate and venture capital especially as savvy managers will be able to take advantage of the dislocations in these arenas. Many also believe the asset class would outperform in a recession or inflation scenario which would likely continue to be a major headwind for stocks and bonds.
Finsum: Alternative investments continue to attract interest especially due to stocks and bonds coming off a poor year in 2022.
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In a Barron’s article, Lauren Foster discussed some ESG recommendations for 2023 from TD Cowen. The bank sees upside for ESG in 2023 due to an increasing focus on energy security, long-term decoupling from fossil fuel, and government-led investments in energy infrastructure. They identify six companies that offer the best combination in terms of ESG metrics and traditional investing factors: Air Products & Chemicals; Norwegian start-up FREYR Battery (FREY); Hannon Armstrong Sustainable Infrastructure Capital;Itron (ITRI), Piedmont Lithium (PLL); and Stem (STEM).
Air Products & Chemicals is the largest of these companies with a $66 billion market cap. TD Cowen notes its critical role in terms of boosting hydrogen production capacity which is a priority for the Biden Administration. It sees the company as being a potential leader in this space given its multiple projects throughout the Middle East and North America.
Notably, many of the companies on Cowen’s list are down considerably given the underperformance of growth stocks since interest rates started moving higher. While there are some headwinds for ESG investing due to a more polarized political climate, Cowen sees the long-term drivers of demand as only strengthening in the coming years.
Finsum: TD Cowen sees ESG picks as having upside in 2023. Here are 6 of its top selections.
In an article for InvestmentNews, Bruce Kelley discussed some of the collateral effects of First Republic’s troubles. Since these issues began in early March, around a third of the company’s advisors in its wealth management division have left the firm.
Following JPMorgan’s takeover of the bank, filing show that 150 advisors remain at the firm, while there were around 230 at the beginning of the year with about $271 billion in total assets. According to JPMorgan, many of the 150 advisors intend to stay on and transition to JPMorgan’s wealth management division.
The bank also revealed that it plans to honor any recruiting deals that were struck by First Republic. Notably, First Republic had been quite aggressive in recruiting clients from banks and smaller firms. Ironically, it had recruited about 40 advisors from JPMorgan since 2010.
JPMorgan’s acquisition should stem the tide of advisors leaving First Republic. In April, a team of First Republic advisors, managing $10.8 billion in assets, departed for Morgan Stanley. Prior to this, another team, which managed $2.3 billion in assets, was picked off by Rockefeller Global Family Office.
Finsum: One of the consequences of the failure of First Republic bank is that many advisors are leaving for greener pastures. But, the JPMorgan acquisition may put a stop to this.
In an article for IFAMagazine, Meg Brantley discusses how active fixed income ETFs staged a turnaround in early March. The asset class was moving lower as it seemed that the economy would continue growing at a rapid clip, adding further fuel to inflation. However, there was a negative shock to the economy as Silicon Valley Bank and Credit Suisse had to be rescued. In turn, risks to the financial system climbed, and there was a stunning turnaround for fixed income. The 2-year Treasury note dropped 119 basis points in three days which was the largest drop since 1987.
For financial markets, it was a major sea-change, and it seems to have marked the bottom in bonds which have been steadily trending higher. Odds of a recession and rate cuts in the first half of 2024 also climbed higher which further contributed to strength in fixed income.
These events have contributed to volatility but also led to opportunity for active fixed-income managers. The forces of a hawkish Fed and raging inflation which dominated 2022 created a negative backdrop for fixed income. Now, the macro backdrop for fixed income has gotten more constructive especially with inflation and rates trending in the right direction.
Finsum: In March, the landscape for active fixed income shifted dramatically. Looking forward, the asset class is offering some compelling opportunities.