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.
In an article for ETFTrends, Ben Hernandez gave some reasons why there is still opportunity for fixed income investors in high-quality bonds, and some ETFs to consider. 2023 has seen a strong rebound for bonds after an abysmal 2022.
The major factor is that inflation expectations have turned lower, while many see an endpoint to the Fed’s hikes later this year. Additionally, increasing odds of a recession have also resulted in inflows into fixed income ETFs.
While the Fed is expected to hike one or two more times, this headwind is more than offset by slower economic growth and increasing risk of a credit crunch given the inverted yield curve and damage to the banking system. Another positive for fixed income ETFs is that yields are at their highest level in decades.
Fixed income investors can take advantage of this favorable backdrop by investing in a high-quality, short-duration ETFs. One example is the Total Bond Market ETF, which is composed of a variety of government, corporate, mortgage-backed securities, and international bonds. Another option is the Vanguard Short-Term Inflation-Protected Securities Index Fund. This is comprised of short-term, inflation-protected Treasury bonds.
Finsum: 2023 has featured a strong rebound for fixed income ETFs. The major factors are a slowing economy, ending of the hiking cycle, and cooling inflation.
In an article for SmartAsset, Eric Reed discussed how artificial intelligence tools will affect financial advisors. Clearly, it’s hard to definitively predict how the technology will evolve, but it will have the most immediate impact on improving the customer experience. Already, chatbots are capable of engaging with customers, booking appointments, and dealing with administrative issues. For instance, advisors could use a chatbot to immediately respond to customers to low-level inquiries. This would result in more time for advisors to spend on higher-value issues.
Beyond customer service, AI tools can also be an asset in terms of portfolio construction and research. AI will allow advisors to leverage considerable computing power to discover opportunities in the market and provide more insight to clients.
For instance, AI can allow advisors to scrape and process massive amounts of data to deliver customized recommendations. This type of analysis can also be applied to a clients’ financial situation, inputting such items like income, spending habits, demographics, and risk tolerance.
AI tools are bound to disrupt nearly every industry on the planet. Financial advice is no different. As of now, the main benefit is that it will provide additional value to clients, while allowing advisors to focus on higher-value work.
Finsum: AI is a disruptive force, and advisors need to embrace it. Currently, these tools can help with low-level tasks, data analysis, and enable advisors to spend more time on high-value tasks.
In an article for CNNBusiness, Nicole Goodkind discussed some reasons why the ESG trend may have peaked and examines if it this is a positive development.
In Q1, total assets under management of ESG funds declined by $163 billion. And, this trend has continued in Q2. This is despite ESG funds modestly outperforming the broader market.
A major factor is that inflows into energy stocks picked up following the war between Russia and Ukraine. Another is that ESG investing is becoming a political issue with many conservative states looking to ban use of ESG considerations in investment decisions by state-run funds.
According to Robert Jenkins, the head of global research at Lipper, ESG investing as a seperate entity will likely be phased out. Instead, ESG ratings will simply be another metric to evaluate investments.
He sees ESG investing evolving into a more mature phase. This phase will be less hype-driven and politically contentious. Instead, the focus will be on standardazing data and ratings so that investors can make better decisions. Overall, it could certainly be positive as it would dissuade companies from ‘greenwashing’ to game ESG ratings, while still allowing investors to include these factors in their decision-making process.
Finsum: ESG investing may have peaked in terms of popularity especially as it’s become a political target. However, the trend may be moving into a more mature phase.
In an article for ETFTrends, James Comtois laid out the 2 major benefits provided by direct indexing as opposed to investing in index funds. Until recently, direct indexing was only available to ultra high net worth investors. Now, it’s increasingly available to a wider swathe of investors.
Direct indexing allows investors to gain the benefits of index investing such as low costs and diversification but allows for greater customization and reduction of taxes. With direct indexing, tax losses are harvested on an interim basis and can be used to offset gains.
According to Morningstar, about $260 billion has moved into the category as of the end of 2022. And, this trend is only expected to strengthen in 2023.
According to Morningstar, “Investing directly in the underlying stocks of an index in lieu of a mutual fund or ETF tracking the same benchmark allows for individually tailored tax management.” Another factor cited is that it allows investors to modify indexes based on their specific values to account for environmental, social, or governance factors. Additionally, investors can prioritize any specific factor they want to emphasize such as value or growth.
Finsum: Direct indexing has seen massive growth over the last couple of years as it’s become increasingly available to a wider clientele. Two major benefits are a lower tax bill and increased customization.