Wealth Management
In an article for Vettafi, James Comois laid out some ways that direct indexing can help reduce taxes. Direct indexing essentially lets investors create their own customized indexes that are appropriate for their personal situations and can help them reach their financial goals.
Rather than buying an ETF or a mutual fund, investors buy the holdings directly. The obvious advantage is that it leads to more personalization so that portfolios can reflect an investors’ values and/or accommodate a unique situation.
A secondary benefit is that it can lead to a lower tax bill, so it may have additional utility for investors to offset capital gains. In essence, losing positions can be sold and then rebalanced into equities with similar factors.
Some of the likely factors that make it more likely that direct indexing can be useful are a high federal or state tax bracket, large investment pool, a steady replenishment of assets, volatile markets, and short-term capital gains. In contrast, the benefits of direct indexing are not substantial enough to offset the additional complications.
Finsum: Direct indexing can be a better choice for certain investors who need greater customization and have high tax bills.
Growing a financial advisor practice is a challenging but rewrarding journey. It will force you to build new skills and marketing yourself in order to find the best clients. In an article for SmartAsset, Rebecca Lake CEFP laid out four key steps for advisors to grow their business.
The first step is to determine who is your ideal client and what niche will you be serving. Specializing in a particular segment will lead to more expertise and trust, leading to longer-lasting relationships and a more sustainable practice. It will also lead many people to seek you out, because they will find greater comfort.
The next step is to write a mission statement. This will help clarify your values, priorities, and motivations. It should be shared with your prospective clients so they have an understanding of how you do business. Not only will it help with conversion, but it will screen out candidates who aren’t a good fit.
Another important step is to get involved in the community which will increase the visibility of your brand and create opportunities for connection with prospects. This also leads to face to face interactions which are often the most impactful.
Finally, advisors should also embrace digital marketing. Younger clients are likely to find you online and will also likely have read reviews. You should have a comprehensive digital strategy and utilize social media, a user-friendly website, and email marketing. You can favor the platforms where your clients are likely to be found.
Finsum: Growing a financial advisor practice can be challenging but rewarding. Rebecca Lake CEFP lays out 4 steps that advisors should take.
In an article for CNBC, Sean Conlon discussed some factors behind the rise in demand for fixed income ETFs. Despite some softening in the economy and in terms of inflationary pressures, the Fed seems intent on hiking by another quarter point at its next meeting.
This is leading to juicy opportunities in the fixed income space which may not last if inflation does continue to trend lower or a recession materializes in the second half of the year. Additionally, current futures markets are forecasting that the Fed will be cutting rates by the end of the year. As noted by Vettafi, this dynamic is leading to inflows into Treasuries, corporate bonds, and high-yield bonds as investors look to lock in duration and yields.
Since the start of the year, there was about $45 billion in inflows into fixed income ETFs. Another factor behind this demand is the underperformance of traditional asset allocation models like 60/40. This is leading many investors to get more conservative and examine the fixed income space for opportunities.Until market stresses ease, demand for fixed income ETFs should remain elevated.
Finsum: Fixed income ETF demand rose sharply in Q1. Given the Fed’s hawkish bent and current market conditions, this should persist.
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In an article for Vettafi, James Comtois laid out some of the benefits of direct indexing for investors. Direct indexing has grown in popularity for certain investors because it leads to greater tax savings and customization than traditional passive and active funds.
In terms of taxes, direct indexing allows investors to sell losing positions and then buy back stocks with similar characteristics. Then, these tax losses can be harvested and used to offset capital gains, leading to a lower tax bill.
Another beenfit of direct indexing is that it allows investors to have their personal values and preferences reflected in their investments. For instance, an investor may be uncomfortable with companies in a certain industry and can exclude them from being considered for investment.
Many investors may also be in a unique situation such as having large exposure to a particular company due to stock options or family holdings. Direct indexing allows them to construct a portfolio that reduces this particular exchange, leading to a more resilient portfolio and financial situation.
Finsum: Direct indexing is growing in popularity as it offers some advantages of traditional funds. However, it’s likely not appropriate or necessary for most investors.
In March, investors withdrew a total of $5.7 billion from US-listed ESG ETFs, leaving ESG funds with total assets of $81 billion according to reporting from Barron’s Lauren Foster.
A major factor in the outflows was Blackrock rebalancing its passive holdings which resulted in a $3.9 billion outflow in a single day. Other factors that accounted for this were cited as political backlash, increased regulatory scrutiny, poor performance, and market volatility.
In Europe, ESG flows are also depressed relative to 2021 but remain positive. In the US, it’s become a political issue as many conservatives are criticizing corporations for involvement in political affairs. Recently, President Biden vetoed legislation that would prevent pension funds from considering ESG factors in their investments.
There has also been some movement at the state level where conservative leaders are pursuing actions such as divesting from financial institutions that don’t invest in energy companies or companies engaging in political activity. So far, these efforst have failed but show that the tide could be turning against ESG.
Finsum: ESG funds saw major outflows in March due to a variety of factors. However, it’s clear that ESG is increasingly becoming a political issue.
In an article for Advisor Perspectives, Scott Welch and Kevin Flanagan of WisdomTree shared some strategies that can be used to generate income in the current market whether using model portfolios or ETFs.
Of course, this is a big change from the last decade when the Fed’s dovish policies meant that dividend yields on equities exceeded bond yields for the most part. This is no longer the case as the Fed is waging an aggressive hiking campaign to curb inflation even at the cost of a bump in the unemployment rate or a recession.
Thus, the Fed has already hiked rates to 5% and is forecast to hike two or three more times before the current cycle is terminated. More important, the Fed is ‘data-dependent’ and willing to change course depending on inflation and/or financial stability concerns.
This uncertainty and elevated rates mean there is a plethora of opportunities for investors to find income. For those who are comfortable with duration risk, high-yield bonds and equities are an option in addition to ETFs. For those not comfortable with duration risk, shorter-term notes and floating rate options are a good fit.
Finsum: After more than a decade of a paucity of options for income investors, the current market is offering a variety of opportunities.